<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 24
TO SCHEDULE 14D-1
TENDER OFFER STATEMENT
(PURSUANT TO SECTION 14(D)(1) OF THE SECURITIES EXCHANGE ACT OF 1934)
QUICKTURN DESIGN SYSTEMS, INC.
(Name of Subject Company)
MENTOR GRAPHICS CORPORATION
MGZ CORP.
(Bidders)
COMMON STOCK, PAR VALUE $.001 PER SHARE
(including the Associated Rights)
(Title of Class of Securities)
74838E102
(CUSIP Number of Class of Securities)
------------------------
WALDEN C. RHINES
PRESIDENT AND CHIEF EXECUTIVE OFFICER
MENTOR GRAPHICS CORPORATION
8005 S.W. BOECKMAN ROAD
WILSONVILLE, OREGON 97070-7777
(503) 685-1200
(Name, Address and Telephone Number of Persons Authorized
to Receive Notices and Communications on Behalf of Bidders)
COPY TO:
JOHN J. HUBER, ESQ. CHRISTOPHER L. KAUFMAN, ESQ.
LATHAM & WATKINS LATHAM & WATKINS
1001 PENNSYLVANIA AVENUE, N.W. 75 WILLOW ROAD
WASHINGTON, DC 20004 MENLO PARK, CALIFORNIA 94025
(202) 637-2200 (650) 328-4600
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
MGZ Corp., a Delaware corporation ("Purchaser"), and Mentor Graphics
Corporation, an Oregon corporation ("Parent"), hereby amend and supplement their
Tender Offer Statement on Schedule 14D-1 filed on August 12, 1998 (the
"Statement"), as amended, with respect to the offer by Purchaser to purchase all
outstanding shares of Common Stock, par value $.001 per share, of Quickturn
Design Systems, Inc., a Delaware corporation, for a purchase price of $12.125
per share, net to the seller in cash, without interest thereon, as set forth in
this Amendment No. 24. Capitalized terms used herein and not defined have the
meanings ascribed to them in the Statement.
ITEM 10. ADDITIONAL INFORMATION.
Item 10(f) of the Statement is hereby amended and supplemented by the
following:
1. On November 13, 1998, Parent is making available on a Mentor Graphics
World Wide Web site (http://www.mentorg.com/file) the exhibits to the Interim
Supplemental Expert Report of James Mack Folsom, as redacted, a copy of which is
attached hereto as Exhibit (a)(46) and is incorporated herein by reference.
2. On November 13, 1998, Parent is making available on a Mentor Graphics
World Wide Web site (http://www.mentorg.com/file) the exhibits to the
Supplemental Report of Blaine F. Nye, Ph.D., as redacted, a copy of which is
attached hereto as Exhibit (a)(47) and is incorporated herein by reference.
ITEM 11. MATERIAL TO BE FILED AS EXHIBITS.
(a)(46) Redacted Exhibits to Interim Supplemental Expert Report of James
Mack Folsom.
(a)(47) Redacted Exhibits to Supplemental Report of Blaine F. Nye, Ph.D.
2
<PAGE>
SIGNATURES
After due inquiry and to the best of my knowledge and belief, I certify that
the information set forth in this statement is true, complete and correct.
<TABLE>
<S> <C> <C>
Dated: November 13, 1998 MENTOR GRAPHICS CORPORATION
By: /s/ GREGORY K. HINCKLEY
--------------------------------------
Name Gregory K. Hinckley
Title: Executive Vice President, Chief Operating
Officer and Chief Financial Officer
MGZ CORP.
By: /s/ GREGORY K. HINCKLEY
--------------------------------------
Name: Gregory K. Hinckley
Title: Secretary and Chief Financial Officer
</TABLE>
3
<PAGE>
JAMES MACK FOLSOM
CURRICULUM VITAE
POSITION: Economic Consultant
Mack Folsom, Inc.
ADDRESS: Home: 2664 North Marcey Road
Arlington, Virginia 22207
Telephone: 540-527-0102
540-527-1699
Fax: 540-527-1006
Office: Same
DATE & PLACE OF BIRTH: May 16, 1932
Barney, Georgia
EDUCATION:
Institution Attended Dates Degree
Georgia Southwestern College 1949-51
University of Georgia 1951-53 BBA (marketing)
Vanderbilt University 1953-54
Vanderbilt University 1556-59
(Completed all requirements for Ph.D. except thesis.)
Major Fields: Industrial Organization and Agricultural Economics
HONORS, SCHOLARSHIPS, FELLOWSHIPS:
Special Scholarship, Vanderbilt University
Earhart Fellowship - 2 years
Ford Foundation Dissertation Fellow
Valedictorian, UGA, Class of 1953
Phi Kappa Phi National Honorary
Beta Gamma Sigma National Honorary
Distinguished Service Award, Federal Trade Commission
Exhibit 1, Page 1 of 4
<PAGE>
PROFESSIONAL EXPERIENCE:
Research Assistant - Displaced Persons' Adjustment to U.S. Economy,
Gregor Sebba, UGA.
Instructor, Industrial Organization and Statistics, Vanderbilt, Summer
1959.
Instructor and Assistant Professor, Duke University, 1959-1964.
(Courses Taught: Principles of Economics, Marketing, Managerial
Economics, and Industrial Organization)
Economist, Division of Economic Evidence, Bureau of Economics, Federal
Trade Commission, 1964-68.
Assistant to the Director, Bureau of Economics, Federal Trade
Commission, 1969.
Chief, Division of Economic Evidence, Bureau of Economics, Federal
Trade Commission, 1970-72.
Assistant Director, Bureau of Economics, Federal Trade Commission,
1972-73.
Acting Director, Bureau of Economics, Federal Trade Commission,
1973-74.
Deputy Director, Bureau of Economics, Federal Trade Commission, 1974-77
and 1978.
Acting Director, Bureau of Economics, Federal Trade Commission,
1977-78.
Senior Vice President, Glassman-Oliver Economic Consultants, Inc., 1828
L Street, N.W., Suite 405, Washington, D.C. 20036, 1978-1997.
PUBLICATIONS:
"Trends in Employment and Earned Income of Older Workers" with Juanita
M. Kreps and C.E. Ferguson, Employment, Income, and Retirement Problems
of the Aged, Duke University Press, 1963.
The Use of Games of Chance in Food and Gasoline Retailing, FTC Economic
Staff Report, 1968.
The 1973 Line of Business Report, FTC Economic Staff Report, 1976, with
F.M. Scherer, et al.
Comment on State of Competition in Food, American Journal of
Agricultural Economics, Vol. 61, No. 1, Feb. 1979, pp. 186-7.
Exhibit 1, Page 2 of 4
<PAGE>
TESTIMONY IN SELECTED LEGAL PROCEEDINGS:
Allied Custom Gypsum vs. United States Gypsum Company, U.S. District
Court for the Western District of Oklahoma, Case No. CIV-91-1409L,
Deposition (1992, 1993)
Red Eagle Resources Corporation, Inc., and its Two Subsidiaries United
Drilling Company and Cimmaron Operating Company, Suits Drilling
Company, and B.A. Newman Well Servicing Co., Inc., on Behalf of
Themselves And All Others Similarly Situated, v. Baker Hughes
Incorporated; Hughes Tool Company; Reed Tool Company, A/K/A Baker RTC,
Inc.; Camco International Inc.; Smith International, Inc.; and Dresser
Industries, Inc., U.S. District Court, Southern District of Texas,
Houston Division, Civil Action No. H-91-627, Deposition (1993)
El Cajon Cinema, Inc., A California Corporation v. American
Multi-Cinema Inc., et al., U.S. District Court, Southern District of
California, Case No. 900710 IEG, Deposition. (1993)
J. Webb Shelley, d/b/a Shelley's Inc. v. Kraft General Foods, Inc., a
Delaware Corporation, and National Dairy Products Corporation, a
Delaware Corporation, U.S. District Court for the Western District of
North Carolina, Civil Action No. C-C-91-427-MU, Affidavit. (1993)
Cleo Stinnett, et al., Plaintiffs, vs. BellSouth Telecommunications,
Inc. D/B/A South Central Bell Telephone Company, Defendant, U.S.
District Court, Eastern District of Tennessee, Docket No. CIV-2-92-207.
(1994)
Irfan Khalid Ali v. His Highness Prince Khalid Bin Fahd Al-Faisal Bin
Abdul-Rahman Al-Sa'ud, et al., C.A. No. 94-41-A, United States District
Court, Eastern District of Virginia, Alexandria Division, Deposition.
(1994)
Broadmoor Theatre v. Ralph Slaughter, et al., B.T. A. No. 4137, Board
of Tax Appeals, State of Louisiana, Deposition. (1994)
The Bon Ton Inc., v. The May Department Stores Co., et al.,
(94-CV-6454L) and State of New York By G. Oliver Koppell, Attorney
General v. The May Department Stores Company, et al. (94-CV-6479L),
United States District Court, Western District of New York, Testimony
by Affidavit and at hearing. (1994)
Cynmarlyn, Inc. v. Hardee's Food System's, Inc., Case No. 94-00540-8C1,
United States Bankruptcy Court, Middle District of Florida, Tampa
Division, Testified by Affidavit. (1994)
Sportmart, Inc., Plaintiff, v. No Fear, Inc., Defendant, Civil Action
No. 94C-4890, United States District Court For the Northern District of
Illinois, Eastern Division (1995), Deposition.
Exhibit 1, Page 3 of 4
<PAGE>
Omega Environmental, Inc. et al., Plaintiffs, v. Gilbarco, Inc., et
al., Defendants, United States District Court, Western District of
Washington at Seattle, No. C94-887Z (1995), Deposition and Trial. In
Re: Brand Name Prescription Drugs Antitrust Litigation, United States
District Court for the Northern District of Illinois Eastern Division,
Case No. 94 C 897, MDL 997, Deposition. (1996)
Ameron v. Total Containment, Inc., et al., CV 94-7871 HLH and Environ
Products, Inc. v. Total Containment, Inc., et al., CV 95-6464, United
States District Court, Central District of California, Deposition and
trial. (1996)
In The Matter of Hardware Logic Emulation Systems and Components
Thereof, Investigation No. 337-TA-383, United States International
Trade Commission, Washington, D.C. (1996 and 1997)
Mexinox, et al. v. Acerinox, et al. and Mexinonx et al. v. Thyssen, et
al., Civ. No. 96-164-A, United States District Court, Eastern District
of Virginia, Deposition. (1996)
Pat's Auto Parts, Inc. v. DuPont, et al., CV-96-02976-RVM, United
States District Court for the Southern District of the Southern
Division-AL, Deposition. (1996)
Testified in Cinamerica Theatres, et al. v. City of Boulder, Colorado,
et al., City's Hearing on Standing. (1997)
Dillard's Virginia v. Crown American Financing Partnership, et al.,
Civil Action No. 4:97cv96, United States District Court for the
District of Virginia, Newport News Division, Deposition (1997).
General Surgical Innovations, Inc. v. Origin Medsystems, Inc. & Origin
v. GSI, United States District Court for the Northern District of
California, Deposition (1998).
Aptix Corporation v. Quickturn Design Systems, United States District
Court for the North District of California, San Jose Division,
Deposition (1998).
Intermedics, vs. Cardiac Pacemakers Inc., United States District Court
for the District of Minnesota, Fourth Division, Deposition (1998).
TESTIMONY AND SPEECHES:
Testified before several congressional committees on diverse subjects -
Sweepstake Promotions, Price Discrimination, Small Business Role in
Economy, Food Retailing, Steel Imports and on FTC Budget.
Speeches before lawyers (e.g., Practicing Law Institute and Ohio Bar
Continuing Legal Education) and business groups.
Exhibit 1, Page 4 of 4
<PAGE>
[Letterhead of Latham & Watkins]
August 7, 1998
Via Fax and Federal Express
Lawrence R. LaPorte, Esq.
Lyon & Lyon
633 W. Fifth Street, Suite 4700
Los Angeles, CA 90071-2066
Re: Mentor & Meta v. Quickturn: Updating Damages Discovery
Dear Larry:
I enclose documents on all five of the issues on which you
asked for more information:
1. U.S. sales of emulation systems made by Mentor/Meta.
2. U.S. customers to whom Mentor/Meta demonstrated,
benchmarked, or price quoted on a SimExpress, in the U.S.
3. Documents showing Mentor's U.S. inventory of emulations
systems and replacement parts from January 1996 to the present.
4. Documents reflecting or relating to price quotes,
benchmarks, or demos to U.S. customers.
5. Correspondence to/from U.S. Customs relating to emulation
systems or replacement parts to emulation systems.
Let me briefly run through the documents so it'll be easier
for you to review them.
Exhibit 2, Page 1 of 3
<PAGE>
LATHAM & WATKINS
August 7, 1998
Page 2
MGDC0023001 through MGDC002389 are documents prepared by
Mentor personnel from a database in Wilsonville, and should reflect every formal
price quote and sales order on the SimExpress in the United States. I say
"should" with some emphasis. MGDC002390, for example, reflects an instance where
the sales person created a quotation on his personal computer instead of using
the centralized database. The only way to find that information is to contact
every sales person at Mentor who was involved in selling the SimExpress. Towards
that end, I have spoken to sales people, account managers, regional managers,
and applications engineers across the country to determine the customer sites at
which SimExpress was demonstrated, benchmarked, or price quoted. Other than the
sites listed in MGDC002300 through MGDC002389, such activity took place at the
following sites: Cabletron (NH); Kodak (Rochester, MA); Nat'l Security Agency
(MD); Cisco Systems (Raleigh & Santa Clara); Honeywell (FL); LexMark (FL);
Motorola (Phoenix, AZ); Brooktree (Austin, TX); TI Semiconductor (Dallas, TX);
Cyrix (Dallas, TX); Fujitsu (Dallas, TX), Alcatel Network Systems (Dallas, TX);
Chip & Technology (Santa Clara); LSI Logic (Milpitas); and Transmeta (Santa
Clara). To my knowledge, after dozens of hours of tracking this information
down, that list is complete. However, given the turnover in the sales force,
etc., it is possible a few companies may not have turned up in my search. If you
believe that to be the case, please feel free to ask me to follow up on any
specific companies. Also, don't hesitate to ask for clarification on how to
interpret these documents, or what exact activity took place at any customer
site.
Returning to the documents themselves, MGDC002300 is a chart
of quote numbers and corresponding sales orders (where a quote did result in a
sales order) from the introduction of the SimExpress to about April 1997, when
Mentor switched over to a new database. MGDC002301-12 is a list of the parts
numbers we searched under, which should be all of the Meta software and hardware
parts. MGDC002313-54 are price quotes issued from introduction of the SimExpress
to about April 1997; MGDC002355-64 are corresponding sales orders.2 (Thus,
MGDC002300 summarizes MGDC002313-64.) MGDC002365-90 are price quotes from April
1997 through the present; none of these were
- -----------------------------
1 I began with Bates Number MGDC002300, leaving a gap from the last Bates
number I am aware of (MGDC002257) out of caution. I labeled them all
Attorneys Eyes Only out of convenience, as most are, but I am willing
to discuss lowering the level of confidentiality on selected documents.
Also, as the financier of the Radix sale is confidential, I have
redacted identifying information from MGDC002315, -17, -19-21, -24-26,
and -57 (relating to Radix quotes and sales orders).
2 The documents reflect the following sales within the United States:
<TABLE>
<CAPTION>
Customer Sale Amount
--------- -----------
<S> <C>
UB Networks $580,268.00
Radix $885,939.00
National Semiconductor $590,952.72
</TABLE>
Mr. Folsom's initial expert report had also listed Bull HN and Motorola
as lost sales. Bull HN is not listed here because the sale occurred
outside the United States. (In any case, you already have the documents
showing the sale price.) Motorola was not a sale but rather a lease;
the documents reflecting the lease amount and the value of the machine
that was leased are included in the materials you received (see
Quotation nos. 63652 & 65075, and Sales Order 68909).
Exhibit 2, Page 2 of 3
<PAGE>
converted into sales orders. Attached to this letter is a chart I prepared this
morning summarizing MGDC002300 through MGDC002380.3
MGDC002390 is a quotation to VLSI Technologies.
MGDC002391-2491 are sales documents relating to UB Networks. MGDC002492-26 are
sales documents relating to DEC. MGDC002527-2645 are sales documents relating to
3Com. MGDC002646-54 are sales documents relating to Cardiac Pacemakers.
MGDC002655-64 are sales documents relating to Cyrix (Dallas). MGDC002665-79 are
the documents I provided you last week relating to alleged lost sales.
MGDC002680-85 are sales documents relating to Lucent.
MGDC002687-2779 are directed towards answering your questions
about inventory. When combined with Gary Hnath's semi-annual declarations in the
ITC, which you should have, these documents provide as clear a picture as is
possible as to the state of Mentor's inventory at various points in time.
MGDC002780-2820 are the documents relating to customs you
requested.
MGDC002821-2910 are sales documents relating to Ericsson, RTP.
Again, do not hesitate to call with questions.
Very truly yours,
/s/ Sanjay Bhandari
-----------------------
Sanjay Bhandari
of LATHAM & WATKINS
cc: Craig Allison, Esq.
- -------------------------
3 As we discussed, I am not providing this as a formal discovery
response, but merely to help you make sense of what you've received --
I felt the need to make it this morning, so I thought I'd spare you the
effort. The chart lists every SimExpress price quote and sales order
contained in Mentor's database. The "Sale?" column indicates whether a
sales order issued on that quote, and if so, the sales order number. In
all instances but one (quotation 62344 & sales order 69314), the quoted
price was the sales order price.
Exhibit 2, Page 3 of 3
<PAGE>
EXHIBIT 3
[UB Networks Purchase Order - Exhibit 3, Pages 1-3 of 3]
<PAGE>
[Letterhead of Latham & Watkins]
July 23, 1998
Lawrence R. LaPorte, Esq.
Lyon & Lyon
633 W. Fifth Street, Suite 4700
Los Angeles, CA 90071-2066
Dear Larry:
I enclose documents relating to the four of the five
transactions claimed by Quickturn as diverted sales: Radix (with redactions of
third-party financier's identity), National Semiconductor, Motorola, and UB
Networks. As to Bull, see the Giordano and Guenthner depositions, the recent
Guenthner declaration, and Giordano Dep. Exs. 6, 14. I have not Bates-numbered
these documents yet; I will number and formally produce them as soon as I can
gather all of the documents responsive to the topics we discussed in our July
14, 1998 conversation.
In the meantime, the attached documents should permit you to
provide us a preliminary estimate of Quickturn's total damages. Please include
in your discounting claims any customer sites / sales in which Mentor may have
been the cause of price discounting. I will continue to gather documents and
information on customer sites at which Mentor demo'd, benchmarked, or price
quoted Meta's emulation system, and will hopefully provide that information
shortly after receiving your estimate.
Very truly yours,
/s/Sanjay Bhandari
--------------------
Sanjay Bhandari
of LATHAM & WATKINS
cc: Craig Allison, Esq.
Exhibit 4, Page 1 of 13
<PAGE>
EXHIBIT 4
[Purchase Order; Exhibit 4, Page 2 of 13]
[Customer Quotation for National Semiconductor Corporation; Exhibit 4, Page 3
of 13]
[National Semiconductor Corporation Purchase Order; Exhibit 4, Pages 4-5 of 13]
[Customer Quotation for Motorola Inc.; Exhibit 4, Pages 6-7 of 13]
[Motorola Inc. Purchase Order; Exhibit 4, Pages 8-9 of 13]
[Customer Quotation for Motorola Inc.; Exhibit 4, Page 10 of 13]
[Motorola Inc. Purchase Order; Exhibit 4, Pages 11-12 of 13]
[Customer Quotation for UB Networks; Exhibit 4, Page 13 of 13]
<PAGE>
LUCENT TECHNOLOGIES LETTERHEAD
LUCENT TECHNOLOGIES
Bell Labs Innovations
GLOBAL WIRELESS PRODUCTS GROUP
Lucent Technologies
101 Crawfords Corner Road
Holmdel, NJ 07733
October 2, 1996
Bob Mareiniss
Mentor Graphics Corporation
15 Independence Boulevard
Warren, NJ 07059
Please use Lucent Purchase Order # xxx in reference to the MGC Corporate
Agreement #1214 (Lucent # G17959D). Mentor Graphics SimExpress emulation product
(Base systems without options A or B) referenced by Quotation # 60908 which
totals $265,413.00 is requested to be shipped immediately to Lucent
Technologies.
Tax status is non-taxable.
Shipping address:
330 South Randolphville Road
Piscataway, N.J. 08855
Attention: John Kolchmeyer
Billing address:
P.O. Box 105466
Atlanta, GA 30348
Regards,
- ----------------------------
Sanjay Kasturia
Director
GWPG, Core Technology Group
Exhibit 5, Page 1 of 1
<PAGE>
MENTOR GRAPHICS LETTERHEAD
October 10, 1996
Lucent Technologies, Inc.
Global Wireless Products Group
101 Crawfords Corner Road
Holmdel, New Jersey 07733
Attention: Sanjay Kasturia
Director, GWPG Core Technology Group
Re: SimExpress Product Delivery
Thank you for your commitment to purchase Mentor Graphics SimExpress emulation
product (Mentor Graphics Customer Quotation No. 60908). This letter confirms
that the shipment has been delivered per your request dated October 3, 1996.
At the time of your letter, the actual anticipated purchase order number had not
been assigned; however, to expedite our project, the system was configured and
shipped to Lucent. Please have a Lucent buyer assign the purchase order number,
co-sign the original letter dated October 3, 1996 and return a copy to me by
October 22, 1996.
We look forward to mutual project success in the first phases of SimExpress
implementation and to Lucent's long-term satisfaction with Mentor Graphics
emulation technology.
If you have any questions, please do not hesitate to call me.
Sincerely,
MENTOR GRAPHICS CORPORATION
/s/ Bob Mareiniss
Lucent Sr. Global Account Manager
cc: Don Cantow, Mentor Graphics
Suhas Pai, Lucent
Exhibit 6, Page 1 of 1
<PAGE>
- -------------------------------------------------------------------------------
Printed By: Matthew Fisch 1/8/4 2:20 AM Page: 1
- -------------------------------------------------------------------------------
From: Steve Duffett (4/1/96)
To: Matthew Fisch
Steve Duffett
NorthEast Sales
Q1 Forecasted Orders - not closed
Matt: Below is the email I sent to Ken and Mike. FYI. Steve.
Ken/Mike: As you know the NorthEast missed our Q1 objective by $190K. The only
Q1 deal that we forcasted and did not close was UB Networks for $710K. MA/Com
has a Q1 swing order ($1.45M RF Partnership) that we will close in April.
What went wrong in the closing of this deal in Q1?
First off, this deal is still very much active and we expect to close this by
April 12th. We are one signature away (Marius Able Sr. VP and GM of the UB
Networks business unit of Tandem Computer). We just ran out of time to get this
done in Q1 mainly because of the lawsuit Quickturn filed against MGC.
Quickturn's lawyers sent letters to UB management informing them of the ITC suit
that will block importation of Sim Express and the patent infringement suit they
have brought against MGC. Also, Frank Caufield of Kleiner, Perkins, Caufield &
Byers a member of Tandem and Quickturn's board of directors sent a letter on
behalf of Quickturn to Roel Piper Pres. of Tandem questioning the UB division's
plans to use Sim Express when Tandem is already successfully using six Quickturn
systems. The net effect of these two tactics is the deal was slowed down by a
few weeks, however UB is committed to move forward with Sim Express and MGC.
Matt Fisch and I were at UB until 6PM on Fri. March 29th trying to get Marius
Able's approval and then have to PO issued. We never gave up trying to get this
done in Q1. The legal T's and C's did not get completed between UB's Legal and
MGC's Dean Freed until 4:30pm EST on Friday. UB is sold on Mentor Graphics and
Sim Express. They have recently hired two people to work exclusively on the
implementation of the SimExpress system. We have told Marius Able, Dan
Schumacher, Dir. Eng Serv., Landis Rogers Dir. ATM Dev., and Jim Welch Dir.
Ethernet Dev. that the resources we have allocated for the implementation of Sim
Express and the development of the 10 Mbit/100Mbit Ethernet and ATM interface
boards to enable them to plug their network traffic into Sim Express are at risk
if we do not receive a PO by April 12th at the latest. They have been told that
the PSD resources they need to be successful will be committed to other customer
programs on April 12th. They know that they need to issue a PO ASAP.
We started the UB sales campaign in mid Feb. We have run a masterful sales
campaign in light of the difficulties we have run into in getting UB to become
MGC's first SimExpress customer in the United States. We have overcome the
lawsuit, legal issues, and board member intervention, lack of PSD resources,
lack of application interfaces, lack of marketing and sales collateral and
Exhibit 7, Page 1 of 2
<PAGE>
lingering customer problems with our Verilog flow for the BSD Architect and
Autologic II licenses we sold to UB in December 95. We have had to create our
own solutions to resolve many of these issues. We took UB to Paris for a
corporate visit to help overcome and address all of the outstanding questions
and concerns Quickturn has raised.
The NorthEast needed the win at UB to happen in Q1. We need a local success
under our belts to help us in Q2 HW Emulation sales campaigns at 3Com-Chipcom,
Cabletron and Digital. Quickturn is going to fight us to the death on these
three sales campaigns. Having a SimExpress reference and customer in the US is
critical for us to be successful in 1995. We will close the UB business.
The NorthEast is working on a number of big Q2 deals that collectively are over
$8M. We will be successful.
Exhibit 7, Page 2 of 2
<PAGE>
EXHIBIT 8
[Target Account Selling Form, Initial Assessment for SimExpress and Services;
Exhibit 8, Page 1 of 1]
Exhibit 8, Page 1 of 1
<PAGE>
EXHIBIT 9
[Spreadsheet titled "Build Configuration"; Exhibit 9, Page 1 of 1]
Exhibit 9, Page 1 of 1
<PAGE>
- -------------------------------------------------------------------------------
Printed By: Matthew Fisch 1/8/4 2:20 AM Page: 2
- -------------------------------------------------------------------------------
outstanding questions and concerns Quickturn has raised.
The NorthEast needed the win at UB to happen in Q1. We need a local success
under our belts to help us in Q2 HW Emulation sales campaigns at 3Com-Chipcom,
Cabletron and Digital. Quickturn is going to fight us to the death on these
three sales campaigns. Having a SimExpress reference and customer in the US is
critical for us to be successful in 1995. We will close the UB business.
The NorthEast is working on a number of big Q2 deals that collectively are over
$8M. We will be successful.
Exhibit 10, Page 1 of 1
<PAGE>
As of 7/21/98
<TABLE>
<CAPTION>
Part Qty Qty Standard Damaged
Number Description good damaged Cost Value Total Value
- -------------- ----------------------------------- --------- ------------ ---------------- ----------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
61336 Mother board 1 0 $2,008.00 $1,004.00 $2,008.00
61374 Logic board 5 2 2,467.00 1,233.50 14,802.00
61375 I/O board 0 1 2,530.00 1,265.00 1,265.00
61278 Service board Master 1 1 1,193.00 596.50 1,789.00
61279 Service board Slave 1 1 322.00 161.00 483.00
61277 Sbus Board 2 0 346.00 173.00 692.00
61337 Transition - FAR board 0 1 181.00 90.50 90.50
61338 Memory board 12M 1 0 6,013.00 3,006.50 6,013.00
61339 Memory board 64M 1 0 4,040.00 2,020.00 4,040.00
61341 Display multi-rack board 2 0 113.00 56.50 226.00
61342 Safety Supply board 4 0 467.00 233.50 1,868.00
61343 Display Power-on light 2 0 117.00 58.50 234.00
61344 Fan 12V 2 0 46.00 24.00 96.00
61346 Power Supply 5V 1000W 1 0 2,111.00 1,055.50 2,111.00
61347 Service Connection-FAR 1 0 101.00 50.50 101.00
61348 I/O brd Connection-FAR 1 0 88.00 44.00 88.00
61350 POD Connection-FAR 1 0 215.00 107.50 215.00
61300 Board Extractor Tool (pair) 1 0 55.00 0.00 55.00
61340 POD Assembly 0 1 424.00 212.00 212.00
- -------------- ----------------------------------- --------- ------------ ---------------- ----------------- ---------------
Total Inventory Value = $36,389.00
</TABLE>
Exhibit 11, Page 1 of 1
<PAGE>
TABLE 1
SUMMARY OF QUICKTURN'S LOSSES CAUSED BY
MENTOR GRAPHICS' INFRINGEMENT
<TABLE>
<CAPTION>
Sales - Lost Profits
- -------------------------------------------
<S> <C>
Past Sales $3,468,000
Maintenance, Past Sales 1,032,400
Future Sales 20,965,000
Maintenance, Future Sales 5,508,000
------------
TOTAL: $30,973,700
------------
------------
</TABLE>
<TABLE>
<CAPTION>
Price Erosion - Lost Profits
- -------------------------------------------
<S> <C>
Past Price Erosion $19,298,400
Future Price Erosion 28,443,900
------------
TOTAL: $47,742,300
------------
------------
TOTAL LOSSES: $78,716,000
</TABLE>
Exhibit 12, Page 1 of 19
<PAGE>
TABLE 2
LOST PROFITS ON ACTUAL SALES AND MAINTENANCE
<TABLE>
<CAPTION>
Equipment Sales Sales
--------------- -----
<S> <C> <C>
UB Network REDACTED
Radix REDACTED
National Semiconductor REDACTED
Motorola REDACTED
Bull REDACTED
-----------
$4,950,000
70% Margin
Lost Profit $3,815,000 $3,468,000
</TABLE>
<TABLE>
<CAPTION>
Maintenance Sales Sales
------------------ -----
<S> <C> <C>
UB Network REDACTED
Radix REDACTED
National Semiconductor REDACTED
Motorola REDACTED
Bull REDACTED
----------
TOTAL: $1,474,900
----------
70% Margin ----------
Lost Profit $1,032,400
</TABLE>
Exhibit 12, Page 2 of 19
<PAGE>
TABLE 3
RADIX -- MAINTENANCE SALES
<TABLE>
<CAPTION>
Radix Q2 `96 Equipment Sale: $REDACTED
------------ ---------------------------
<S> <C>
Maintenance Sales Q3 `96 $REDACTED
Q3 `97 $REDACTED
Q3 `98 $REDACTED
---------
Lost Maintenance: $REDACTED
</TABLE>
Exhibit 12, Page 3 of 19
<PAGE>
TABLE 4
NATIONAL SEMICONDUCTOR -- MAINTENANCE SALES
<TABLE>
<CAPTION>
National Seminconductor Equipment Sale: $REDACTED
----------------------- ---------------------------
<S> <C>
Maintenance Sales Q2 `97 REDACTED
Q2 `98 REDACTED
Q2 `99 REDACTED
--------
Maintenance Sales Lost $REDACTED
NPV of Sales Lost $REDACTED
</TABLE>
Exhibit 12, Page 4 of 19
<PAGE>
TABLE 5
UB NETWORK -- MAINTENANCE SALES
<TABLE>
<CAPTION>
UB Network Equipment Sale: $REDACTED
---------- ---------------------------
<S> <C>
Maintenance Sale Q3 `96 REDACTED
Q3 `97 REDACTED
Q3 `98 REDACTED
---------
Maintenance Sales Lost $REDACTED
NPV of Sales Lost $REDACTED
</TABLE>
Exhibit 12, Page 5 of 19
<PAGE>
TABLE 6
BULL -- MAINTENANCE SALES
<TABLE>
<CAPTION>
Bull Maintenance Equipment Sale: $REDACTED
----------------- ---------------------------
<S> <C>
Maintenance Sale Q3 `95 REDACTED
Q3 `96 REDACTED
Q3 `97 REDACTED
---------
Maintenance Sales Lost $REDACTED
NPV of Sales Lost $REDACTED
</TABLE>
Exhibit 12, Page 6 of 19
<PAGE>
TABLE 7
MOTOROLA -- MAINTENANCE SALES
<TABLE>
<CAPTION>
Equipment Sale: $REDACTED
--------------------------
<S> <C>
Maintenance Sale Q1 `97 REDACTED
Q1 `98 REDACTED
Q1 `99 REDACTED
---------
Maintenance Sales Lost $REDACTED
NPV of Sales Lost $REDACTED
</TABLE>
<PAGE>
TABLE 8
QUICKTURN DESIGN SYSTEMS AVERAGE PRICE PER GATE
<TABLE>
<CAPTION>
Period Average Price
------ -------------
<S> <C>
Q3 `94 - Q2 `95 REDACTED(cent)
Q3 `95 - Q2 `96 REDACTED(cent)
Q3 `96 - Q2 `97 REDACTED(cent)
Q3 `97 - Q2 `98 REDACTED(cent)
</TABLE>
Exhibit 12, Page 8 of 19
<PAGE>
TABLE 9
QUICKTURN'S LOSSES ON FUTURE SALES OF
EQUIPMENT AND MAINTENANCE CAUSED BY
MENTOR GRAPHICS INFRINGEMENT
<TABLE>
<CAPTION>
MPV Of Lost Profit On NPV Of Lost Profit on
Equipment Sales Maintenance Sales
---------------------- ---------------------
<S> <C> <C>
UB Network $REDACTED $REDACTED
Bull REDACTED REDACTED
Motorola REDACTED REDACTED
National Semiconductor REDACTED REDACTED
TOTAL $20,965,000 $5,508,300
</TABLE>
Exhibit 12, Page 9 of 19
<PAGE>
TABLE 10
QUICKTURN'S LOST PROFIT ON FUTURE EQUIPMENT SALES TO UB NETWORK
(TANDEM) CAUSED BY MENTOR GRAPHICS' INFRINGEMENT
<TABLE>
<CAPTION>
Equipment Sales
---------------
<S> <C>
Q1 `97 $REDACTED
Q1 `98 REDACTED
$REDACTED
70% Margin
Lost Profit $REDACTED
</TABLE>
Exhibit 12, Page 10 of 19
<PAGE>
TABLE 11
QUICKTURN'S LOST PROFIT ON FUTURE MAINTENANCE SALES TO
UB NETWORKS CAUSED BY MENTOR GRAPHICS' INFRINGEMENT
<TABLE>
<CAPTION>
NPV Maintenance Sales
---------------------
<S> <C>
Q2 `97 $REDACTED
Q2 `98 REDACTED
Q2 `99 REDACTED
Q2 `00 REDACTED
---------
$REDACTED
20% Margin
NPV of Lost Profit $REDACTED
</TABLE>
Exhibit 12, Page 11 of 19
<PAGE>
TABLE 12
QUICKTURN'S LOST PROFIT ON FUTURE EQUIPMENT SALES TO MOTOROLA
CAUSED BY MENTOR GRAPHICS' INFRINGEMENT
<TABLE>
<CAPTION>
Equipment Sales
---------------
<S> <C>
Q2 `97 $REDACTED
Q3 `97 REDACTED
Q4 `97 REDACTED
Q1 `98 REDACTED
Q2 `98 REDACTED
Q3 `98 REDACTED
--------
$REDACTED
70% Margin
Lost Profit $REDACTED
</TABLE>
Exhibit 12, Page 12 of 19
<PAGE>
TABLE 13
QUICKTURN'S LOST PROFIT ON FUTURE MAINTENANCE SALES TO MOTOROLA
CAUSED BY MENTOR GRAPHICS' INFRINGEMENT
<TABLE>
<CAPTION>
NPV of Maintenance Sales
------------------------
<S> <C>
Q3 `97 $REDACTED
Q4 `97 REDACTED
Q1 `98 REDACTED
Q2 `98 REDACTED
Q3 `98 REDACTED
Q4 `98 REDACTED
Q1 `99 REDACTED
Q2 `99 REDACTED
Q3 `99 REDACTED
Q4 `99 REDACTED
Q1 `00 REDACTED
Q2 `00 REDACTED
Q3 `00 REDACTED
Q4 `00 REDACTED
--------
$REDACTED
70% Margin
NPV of Lost Profit $REDACTED
</TABLE>
Exhibit 12, Page 13 of 19
<PAGE>
TABLE 14
QUICKTURN'S LOST PROFIT ON FUTURE EQUIPMENT SALES TO NATIONAL
SEMICONDUCTOR CAUSED BY MENTOR GRAPHICS' INFRINGEMENT
<TABLE>
<CAPTION>
Equipment Sales
---------------
<S> <C>
Q3 `97 $REDACTED
Q4 `97 REDACTED
Q1 `98 REDACTED
Q2 `98 REDACTED
Q3 `98 REDACTED
---------
$REDACTED
70% Margin
Lost Profit $REDACTED
</TABLE>
Exhibit 12, Page 14 of 19
<PAGE>
TABLE 15
QUICKTURN'S LOST PROFIT ON FUTURE MAINTENANCE SALES TO NATIONAL
SEMICONDUCTOR CAUSED BY MENTOR GRAPHICS' INFRINGEMENT
<TABLE>
<CAPTION>
NPV of Maintenance Sales
------------------------
<S> <C>
Q4 `97 $REDACTED
Q1 `98 REDACTED
Q2 `98 REDACTED
Q3 `98 REDACTED
Q4 `98 REDACTED
Q1 `99 REDACTED
Q2 `99 REDACTED
Q3 `99 REDACTED
Q4 `99 REDACTED
Q1 `00 REDACTED
Q2 `00 REDACTED
Q3 `00 REDACTED
Q4 `00 REDACTED
--------
$REDACTED
70% Margin
NPV of Lost Maintenance Sale $REDACTED
</TABLE>
Exhibit 12, Page 15 of 19
<PAGE>
TABLE 16
QUICKTURN'S LOST PROFIT ON FUTURE EQUIPMENT SALES TO
BULL CAUSED BY MENTOR GRAPHICS' INFRINGEMENT
<TABLE>
<CAPTION>
Equipment Sales
---------------
<S> <C>
Q1 `97 $REDACTED
70% Margin
Lost Profit $REDACTED
</TABLE>
Exhibit 12, Page 16 of 19
<PAGE>
TABLE 17
QUICKTURN'S LOST PROFIT ON FUTURE MAINTENANCE SALES TO
BULL CAUSED BY MENTOR GRAPHICS' INFRINGEMENT
<TABLE>
<CAPTION>
NPV of Future Maintenance Sales
-------------------------------
<S> <C>
Q2 `97Q4 `97 $REDACTED
Q2 `98 REDACTED
Q2 `99 REDACTED
--------
$REDACTED
70% Margin
NPV of Lost Profit $REDACTED
</TABLE>
Exhibit 12, Page 17 of 19
<PAGE>
TABLE 18
QUICKTURN'S LOSSES FROM PRICE EROSION CAUSED BY
MENTOR GRAPHICS' INFRINGEMENT
<TABLE>
<CAPTION>
Expected Actual No. of Domestic Domestic Price
Period Price Price Gates Share Erosion Loss
------ -------- ------ ------- -------- ---------------
<S> <C> <C> <C> <C> <C>
Q3 `96 $0.85 REDACTED REDACTED REDACTED $4,415,800
Q4 `96 0.85 REDACTED REDACTED REDACTED 1,781,300
Q1 `97 0.85 REDACTED REDACTED REDACTED 2,968,200
Q2 `97 0.85 REDACTED REDACTED REDACTED 641,600
Q3 `97 0.83 REDACTED REDACTED REDACTED 930,100
Q4 `97 0.83 REDACTED REDACTED REDACTED 2,294,200
Q1 `98 0.83 REDACTED REDACTED REDACTED 510,700
Q2 `98 0.83 REDACTED REDACTED REDACTED 5,756,500
-----------
TOTAL: $19,298,400
</TABLE>
Exhibit 12, Page 18 of 19
<PAGE>
TABLE 19
QUICKTURN'S LOSSES FROM FUTURE PRICE EROSION CAUSED BY
MENTOR GRAPHICS' INFRINGEMENT
FIVE YEARS -- DISCOUNT RATE 20%
LAST FULL ACTUAL YEAR, Q3 `97-Q2 `98: $9,451,500
<TABLE>
<CAPTION>
Discount Factor NPV
--------------- ---
<S> <C> <C> <C>
Q3 `98 - Q2 `99 $9,149,100 .9129 $8,352,200
Q3 `99 - Q2 `00 8,856,300 .7607 6,737,000
Q3 `00 - Q2 `01 8,572,900 .6339 5,434,400
Q3 `01 - Q2 `02 8,298,600 .5283 4,384,200
Q3 `02 - Q2 `03 8,033,000 .4402 3,536,100
------------
TOTAL: $28,443,900
</TABLE>
Exhibit 12, Page 19 of 19
<PAGE>
EXHIBIT 13
[Line Graph titled "Quickturn's Average Price Per Gate in Years Ending in the
Second Quarter, 1995-1998"; REDACTED]
Exhibit 13, Page 1 of 1
<PAGE>
UNITED STATES DISTRICT COURT
DISTRICT OF OREGON
MENTOR GRAPHICS CORPORATION Civil No. C96-00342-RE
an Oregon corporation,
CONSOLIDATED CASES
Plaintiff,
v.
QUICKTURN DESIGN SYSTEMS, INC.
a Delaware corporation,
Defendant.
META SYSTEMS, a French
corporation,
Plaintiff,
v.
QUICKTURN DESIGN SYSTEMS, INC.
a Delaware corporation,
Defendant.
Expert Report of James Mack Folsom
I. Qualifications and Experience
1. My name is James Mack Folsom. I am an economist with almost four
decades of experience in analyzing the impact of actions by one firm or a group
of firms on the income of other firms. I received my Bachelor of Business
Administration Degree with a major in marketing from the University of Georgia
in 1953 and did post graduate work at Vanderbilt
Exhibit 14
<PAGE>
University where I completed all the requirements for a Ph.D. except for the
dissertation. I taught economics and marketing at Duke University from 1959
until 1964.
2. From 1964 through 1978, I held various positions in the Bureau of
Economics at the Federal Trade Commission. Among the positions held were staff
economist in the Division of Economic Evidence, assistant to the Director of the
Bureau of Economics, Chief of the Division of Economic Evidence, Assistant
Director, Deputy Director and Acting Director of the Bureau of Economics.
3. Since 1978 I have been employed at Glassman-Oliver Economic
Consultants, Inc. where I am currently a senior vice president. During my
employment at Glassman-Oliver, I have testified either in deposition or at trial
in more than 30 matters where damages were an issue. In addition, I have worked
on a number of matters involving measurement of damages where I did not testify.
4. Attached is my resume (Tab A) which includes my educational
background, all testimony in the last four years and all publications in the
last 10 years. Charges for my time are $300 per hour.
II. Background and Material Studied
5. I was retained by Lyon & Lyon, Quickturn's law firm, to perform an
economic analysis, for presentation to the International Trade Commission (ITC),
of the damage to Quickturn as a result of Mentor Graphics/Meta Systems'
(hereinafter "Mentor") infringement of Quickturn's patents, including the
calculation of an appropriate bond for Mentor to post to ensure that Quickturn
would be made whole if an ITC exclusion order based on a patent violation was
granted and to calculate, to the extent possible, the damages to Quickturn as a
result of the patent infringement. I have provided both written and oral
testimony before the International Trade
Exhibit 14
<PAGE>
Commission in related action at the Temporary Exclusion Order (TEO) Hearing and
the Permanent Exclusion Order (PEO) Hearing.
6. As preparation for my analysis in the TEO phase, I reviewed and
analyzed publicly available documents on emulation, the depositions of Dragani,
Garity, Tarlecki, and Hoteling (Account Managers for Quickturn); Ostby,
Cibulski, Moore, Huang, Antle and Lobo (Officers of Quickturn); Kenney, Zafar,
Tung and Rhines (Officers of Mentor); and Reblewski (Volume 3 only - President
of Meta) and the exhibits to those depositions. I attended the depositions of
Mentor's expert, Hoffman, discussed the business with Ostby, Moore and Cibulski,
reviewed Quickturn's financial data, attended a sales conference at Quickturn
and reviewed sales, financial, marketing and business plans of both Mentor and
Quickturn; and attended the TEO Hearings to listen to the oral testimony of both
Mentor and Quickturn witnesses who addressed business and economic matters as
opposed to technical issues. Subsequent to my testimony, I reviewed the total
record developed at the TEO Hearing to help locate record support for
Quickturn's proposed findings of fact.
7. In the PEO phase of the ITC Investigation, I studied Administrative
Law Judge Paul J. Luckern's Findings of Fact in his TEO Decision finding a
likelihood of patent infringement and granting a TEO, the Commission's
Investigative Staff's Pre-Trial Memorandum (4/4/97) and the Commission Opinion
on Remedy, the Public Interest, And Bonding, which approved the TEO, and
reviewed and analyzed the depositions (including exhibits thereto) of Wally
Rhines, Brian Dalio, Callan Carpenter, R. Douglas Norby and Gabriele Pulini; the
witness statements of Ostby and Jordan of Quickturn; Meta's Third Quarter 1996
YTD P&L Statement (MG017788 - MG017832); the Meta Business Unit Plan, 1997
(MG018490 - MG018508); information available over Mentor's internet address;
publicly
Exhibit 14
<PAGE>
available data on Quickturn's 1996 sales and margins and data obtained via
telephone from Ray Ostby; discussed Quickturn's business with Ostby and Jordan;
and attended the PEO Hearings to hear the live testimony of the business
witnesses.
8. In further preparation for analyzing the damages to Quickturn from
Mentor's alleged patent infringement, I reviewed Quickturn's proposed findings
of fact for the PEO Hearing, requested data from Mr. Ostby and Mr. Jordan on the
impact of Mentor's presence on the prices which Quickturn was able to obtain as
compared to the prices which Quickturn would have obtained absent Mentor and on
the size of the sales situations where Quickturn lost in competition with
Mentor. (Examples of items reviewed are attached as Tab B.)
III. Types of Damages to Quickturn
9. The analysis which follows is based on the assumption that the
Mentor's emulation system infringes patents owned by Quickturn. This
infringement results in harm and damages to Quickturn in, at least, the
following ways:
a. Quickturn has lost United States sales to Mentor. (See Tab
C.) As a result of these lost sales, Quickturn has lost the profit on both the
equipment and service which would have accompanied the sale of equipment. The
immediate loss suffered by Quickturn is the difference between the revenue which
Quickturn would have received from the sale and the variable costs which
Quickturn would have incurred in making the sale.
b. As a result of the competition from Mentor, Quickturn has
been forced to reduce its price to prevent additional loss of sales in the
united States. The loss suffered by Quickturn is the difference between the
price it would have received without the competition from Mentor and the price
it did receive in the situations where it faced competition from Mentor.
Exhibit 14
<PAGE>
c. In instances where Quickturn loses a sale to Mentor, it
also loses the sale of the service which accompanies the sale of emulation
equipment. The service sale always covers at least one year and frequently is
extended for an additional year or for several years.
d. When Quickturn loses a sale to Mentor, the probability that
Quickturn will be able to make a sale to that same customer in the future is
greatly reduced. Approximately three-fourths of Quickturn's sales are repeat
purchases by past customers. Mentor is targeting Quickturn's largest customers
which are also Quickturn's repeat customers. This means that the customer who
has used Mentor equipment is substantially less likely to favor Quickturn over
other competitors than in the situation where the customer has been using
Quickturn equipment. In the worst case scenario, the customer who is
particularly pleased with the performance of the Mentor emulation system might
transfer it overseas if he could not obtain another Mentor emulator in the
United States. Thus, this loss of future sales can be substantial.
e. A loss of a sale by Quickturn in the United States may also
lead to a loss of sales outside the United States. Mentor specifically
recognized that making a sale in United States might lead to additional sales
outside the United States, e.g., Texas Instruments. (E.g., Pulini Deposition
Exhibit 28 indicates that the TI benchmark in the Dallas territory is being
followed by several TI locations outside the U.S., which are looking at "this
benchmark as a milestone in their decision making process.)
f. Sales officials from Quickturn have been uniform in stating
that the presence of Mentor as a competitor has caused potential emulation
purchasers to delay their decisions to purchase, thus delaying the receipt of
revenue. The delay in the receipt of revenue is important because it may impact
on Quickturn's ability to fund research and development for future products or
product improvements and because it may impact on the value of Quickturn's
Exhibit 14
<PAGE>
stock. Quickturn's expenditure for research and development amounts to about 18
percent of sales and exceed its profits. Since stock incentives are an important
part of the compensation of the top Quickturn managers, a reduction in the value
of Quickturn's stock increases the probability that Quickturn will lose some of
its important managers. Quickturn's stock, and its corresponding price, is also
a resource that can be used by Quickturn management in building a relatively
small company like Quickturn through acquisition(s). Anything which depresses
the price of Quickturn's stock makes acquisitions more expensive.
g. The presence of Mentor as a competitor has raised the cost
of attempting to sell emulators by making benchmark tests a part of the sales
process.
h. Mentor's presence in the marketplace for emulators has
led to reduced prices to the customers where Mentor competed with Quickturn.
That price erosion may extend beyond the immediate equipment sold. Quickturn,
even in the instances where it wins the competition, may find it difficult to
return to pre-Mentor pricing levels even if Mentor is no longer in the market.
IV. Measurement of Damages
10. The damages which are measured herein are limited to those direct
damages that are that result from sales of equipment and service which have been
lost to Mentor. This restriction means that damages are estimated only for items
a and part of c, above. Additionally, a measurement of damages associated with
items b and the remainder of c will be furnished. Because of the difficulties of
predicting what will happen in the future as well as the effect of certain
harms, damages presently cannot be estimated for items d - h.
11. Damages on Lost Sales. The first item of information required in
estimating the damages from lost sales is the dollar volume of those lost sales
of both equipment and service.
Exhibit 14
<PAGE>
Estimates of the size of the sales contracts for both equipment and one year of
service were obtained from Quickturn's management and reflect their judgment of
what sales revenues would have been, absent Mentor. Tab C shows that the
estimated sales which Quickturn lost to Mentor equaled $5,450,000. The next step
is to ascertain what Quickturn's profits above its variable costs would have
been on those lost sales. The analysis begins with the calculation of
Quickturn's margin over cost of revenue. For 1996, the margin over cost of
revenue (cost of goods) was 69 percent as shown in the publicly available
financial statement of Quickturn. Cost of revenue, however, includes items which
are fixed, i.e., not a function of the number of units sold. For example, the
1996 plan shows: (QM 56911)
<TABLE>
<CAPTION>
<S> <C>
Sales $104,000,000
Cost of Goods Sold 32,240,000
Obsolescence 1,365,361
R&D Allocation 1,470,000
Customer Support Allocation 1,992,000
</TABLE>
The last three items are fixed costs and account for 15 percent of the cost of
goods sold and 4.6 percent of sales. Other fixed or largely fixed items include
depreciation of the manufacturing facility, property taxes, repair and
maintenance, rent and utilities. Quickturn begins by assigning all of these
costs to manufacturing and then reallocates them to the other company operations
(sales, R&D, etc.) These costs are estimated to represent approximately one
percent of sales. Thus, the margin after variable cost of goods sold is
approximately 74.5 percent.
12. To arrive at the margin after all variable costs are considered
requires that variable selling costs be subtracted from the margin left after
the variable cost of goods sold is subtracted from sales. The variable sales
cost is commissions on sales which were planned to be
Exhibit 14
<PAGE>
REDACTED percent of sales in 1996. (QM 56915) Subtracting these costs from the
margin over variable manufacturing costs results in a margin of 70 percent which
is the percentage lost that Quickturn suffers from each sale of equipment and
service that Mentor won from them. The dollar loss is 70 percent of the sales
loss of $5,450,000 shown in Tab C, or $3,815,000.
13. Damages From Price Erosion. Quickturn's loss because it had to
accept a lower price in United States situations where it faced competition from
Mentor than the prices it received in situations where Mentor was not a
competitor is estimated by examining the discounts which Quickturn had to offer
to complete the sale where Mentor was a competitor as compared to the discounts
where Mentor was not a competitor. In the TEO hearings, the evidence presented
showed that the average discount where Mentor was a competitor was 50 percent
off list as compared to an average of 25 percent off list where Mentor was not a
competitor but other sellers were. (Administrative Law Judge Luckern's Finding
of Fact No. 336) Judge Luckern also found that in situations where Quickturn
faced competition from Mentor/Meta the average discount from list was 40 percent
as compared to 10 to 20 percent average where Mentor/Meta was not a competitor -
and concluded that the average difference was about 25 percent. (Commission
Opinion, page 18) Both approaches demonstrate that Quickturn's offered price
where Mentor is a competitor is less than its offered price where Mentor is not
a competitor. To determine whether this continues to be the appropriate measure
of price erosion caused by the presence of Mentor in the accounts requires an
analysis of information available only from Mentor on Mentor's pricing activity
which has not yet been furnished. Without this, it is not possible to determine
whether the additional discounts offered by Quickturn are the result of the
presence of Mentor or are the result of the presence of some other competitor.
When information on Mentor's pricing activity is received, the analysis
Exhibit 14
<PAGE>
of price erosion caused by Mentor's presence will be completed and an estimate
of Quickturn's losses from price erosion will be calculated.
14. Quickturn's short run loss profits on lost sales and service are,
as indicated above, $3,815,000. In addition, Quickturn suffered a loss of income
which it would have received from the lost profits if it had received them at
the proper time. This simply recognizes that money received earlier is more
valuable than money received later, because investment income can be earned with
the money received earlier. Quickturn's income from its investments, which
averaged $32,811,000 in 1996, was $1,785,000 or 5.4 percent. This is comparable
to the rate on one year T bills which was 5.25 percent on February 29, 1996. A
conservative time period of 18 months has been assumed (although the sale to
Bull (AZ) was made more than 18 months ago) and has been divided by two to allow
for the fact that the income flow was over time. With a 5.2 percent interest and
a nine month period, Quickturn's lost interest income amounts to $149,000. The
total short run loss to Quickturn from lost sales is $3,815,000 + $149,000 =
$3,964,000.
V. Reasonable Royalty
15. I have examined the question as to what would be a reasonable
royalty for Mentor to pay Quickturn if Mentor is allowed to continue to sell
emulators which, without a license, would violate Quickturn's patents. The
analysis is based upon the guidelines provided by the court in the Georgia
Pacific v. United States Plywood case (318 F. Supp. 1116). A brief discussion of
the 15 factors mentioned by the court follows:
a. The royalty received by the patentee for the licensing of
the patent in question. Quickturn has not licensed any party to use the patents
in question. Quickturn has not licensed any party to use the patents in
question.
Exhibit 14
<PAGE>
b. The rates paid by the licensee for the use of other patents
comparable to the patents in question. No information was available to
demonstrate that the licensee had any comparable patents.
c. The nature and scope of the license. It is assumed that
Mentor would not have been limited geographically since they were attempting to
sell emulation systems all over the world and that Quickturn would not have
considered licensing any other firm to use the patents in question.
d. The licensor's established policy and marketing program to
maintain his patent monopoly. The available evidence does not demonstrate any
willingness on the part of Quickturn to license its patents to any party.
e. The commercial relationship between the licensor and
licensee. Quickturn and mentor are direct competitors throughout the world in
the sale of emulation equipment and service.
f. The effect of selling the patented item in promoting sales
of other products of the licensee and the existing value of the invention to the
licensor as a generator of sales of his nonpatented items. Both Quickturn and
Mentor will make a service sale in connection with each emulator sold. The
service sale will be equal to 10 to 15 percent of the value of the emulator. In
addition, Mentor views its emulation product as allowing it to offer a complete
service to designers of application specific integrated circuits and its
documents indicate an expectation of additional sales because of its emulation
line. Over ninety percent (90%) of Quickturn's revenues are a direct result of
the sale of emulation systems and service which contain the patented technology.
That patented technology is the key to Quickturn's business operations.
Exhibit 14
<PAGE>
g. The duration of the patent and the term of the license.
There are approximately 8 years left in the patent life and it is assumed that
mentor would want a license for the remaining life of the patents.
h. The established profitability of the product made under the
patent; its commercial success; and its current popularity. The product has
become profitable for Quickturn in recent years, specifically since about 1994.
Quickturn's before tax profit on marginal sales in 1996 was 41 percent if
Quickturn had held research and development expense constant at its 1995 level.
This profit would have been even higher except for the presence of Mentor as a
competitor. Emulation has recently become a growing commercial success and it is
probable that designers of large ASIC's and other computer chips will continue
to use or begin, to use emulation in future design efforts.
i. The utility and advantages of the patent property over old
modes or devices, if any, that had been used for working out similar results.
Large ASIC's were designed before there was emulation by having the chip
manufactured and then testing. However, the fact that designers of these large
ASIC's are now willing to pay hundreds of thousands or even millions of dollars
for access to emulation indicates that the product is considered highly
desirable. In certain designs (e.g., gate size in excess of 100,000 gates)
hardware emulation appears to be the most beneficial method of development.
j. The nature of the patented invention; the character of the
commercial embodiment of it as owned and produced by the licensor; and the
benefits to those who have used the invention. The patents provide the basis to
allow field programmable gate arrays to communicate with one another in order to
emulate (copy) an ASIC. This is embodied in a piece of equipment called an
emulator. In 1995, Quickturn's two largest customers in the U.S.
Exhibit 14
<PAGE>
purchased in excess of REDACTED million dollars ($REDACTED million) each of
emulation equipment and the accompanying service - indicating that customers
place a high value on the equipment.
k. The extent to which the infringer has made use of the
invention; and any evidence probative of the value of that use. Mentor has been
using the invention in its emulators which it has sold or offered for sale in
the United States. Mentor's documents show that its intent is to become the
largest seller of emulation equipment, displacing Quickturn from the position
which it now occupies. Mentor's documents also show Mentor's integration (i.e.,
bundling) of emulation with other products so as to increase sales of its
software products.
l. The portion of the profit or of the selling price that may
be customary in the particular business or in comparable businesses to allow for
the use of the invention or analogous inventions.
No analogous inventions are known.
m. The portion of the realizable profit that should be
credited to the invention as distinguished from non-patented elements, etc.
Without the invention, Mentor would have no product to sell and thus would also
not be able to sell the service associated with its emulator. It is my opinion
that 100 percent of the realizable profit should be credited to the inventions
of the Quickturn patents.
n. The opinion testimony of qualified experts. The expert
preparing this report did not have any testimony from other experts.
o. What a willing buyer and a willing seller would have agreed
upon. Given that Quickturn's fortunes depend solely on its ability to sell
emulators, that Mentor had additional contacts with customers because it sold an
array of products and services far beyond emulators, that Mentor claimed that
its emulator was better, than that of Quickturn - particularly
Exhibit 14
<PAGE>
with respect to speed, and that Mentor had financial resources far in excess of
Quickturn, it is unlikely that Quickturn would have been a willing licensor of
the patents in questions. More likely, Quickturn would have felt that it would
lose any competitive battle with Mentor over the longer run, given Mentor's
superior monetary and sales resources.
16. When one considers all the factors, it seems obvious that Quickturn
would at least want the marginal profit which it would make from selling
emulation equipment and service. The increase in sales can be obtained by
subtracting 1995 sales from 1996 sales ($104,370,000 - $81,800,000 = $22,570,
000). The increase in profit can be obtained by subtracting net income before
taxes in 1995 from net income in 1996 ($18,054,000 - $12,471,000 = $5,583,000).
In addition to this lost profit, Quickturn would also lose $3,684,000 of
research and development - the increase in research and development expenditure
from 1995 to 1996. Thus, the total lost to Quickturn would have been $9,267,000
on sales of $22,570,000. The marginal profit rate with the additional
competition from Mentor was 41 percent of sales in 1996 ($9,267,000 an a percent
of $22,570,000). In addition, Quickturn's profits would have been higher on its
actual sales except for the price erosion caused by Mentor's presence as a
competitor. Once discovery is complete and an estimate of Quickturn's losses
from price erosion can be made, it will be possible to calculate the marginal
profit rate Quickturn would have made, absent price erosion. Since this will be
higher than 41 percent, it seems certain that Quickturn would not be a willing
licensor for less than the 41 percent of Mentor's sales of emulation equipment
and service in the United States. In fact, it is reasonably certain that
Quickturn would not agree to license the patent unless it was paid a royalty
equal to the profit which it would have made on marginal sales if Mentor had not
been a competitor since Quickturn had the capacity to fill the market needs.
Exhibit 14
<PAGE>
17. In fact, the 41% royalty takes into account only the profit which
Quickturn loses on its marginal sales. It does not consider the price erosion
which occurs because of the presence of Mentor as a competitor and which reduces
Quickturn's profit on the sales which it does make. This is particularly
important because the price erosion is likely to expand as Mentor grows.
18. One should note that I have eliminated the additional expenditure
for R&D by Quickturn in calculating the marginal profit for 1996. This is
appropriate in determining a reasonable royalty because Quickturn hopes to gain
in the future from the current expenditure on R&D. An alternative approach would
have been to calculate the profit counting R&D as a cost and then to add the R&D
expenditure which Quickturn lost because of Mentor being a licensee to the
profit lost. The results should be the same and are what one would expect
Quickturn to demand if it agreed to license its patents.
19. I also note that during the TEO phase of the ITC Investigation, the
Commission set a bond of 43% of the entered value of the Meta emulation system.
The 43% was calculated based upon the price erosion when Mentor/Meta was present
in an account (25%), plus 18%, which represents Quickturn's lost R&D investment
from the lost marginal sales. This supports my determination of a 41% reasonable
royalty. However, this has not been an effective deterrent and Quickturn has
filed a motion to increase the bond to 106 percent. This motion has been
supported by the ITC staff, who have sought to increase the bond to 180 percent.
20. As noted above, damage discovery is not yet complete in this matter
in that Mentor has not provided complete disclosure of its recent sales and
pricing activity and its importation and domestic manufacturing activity. This
has prevented an estimate being made of Quickturn's damages from price erosion.
In addition, Quickturn may make additional sales where price erosion is factor
because Mentor is a competitor between the date of this report and
Exhibit 14
<PAGE>
the trial. Mentor may also make additional sales during that same time period.
Thus, the above calculations on lost sales and price erosion are subject to
upward revision, based upon newly discovered information from Mentor. Finally,
an estimate will be made of the damages to Quickturn from price erosion once
discovery is complete.
/s/ James Mack Folsom
----------------------
James Mack Folsom
Exhibit 14
<PAGE>
QUOTATIONS & SALES ORDERS PRINTED FROM DATABASE IN WILSONVILLE
<TABLE>
<CAPTION>
Date of Quoted
Customer Quote Quote # Amount Sale?
- -------- ----- ------- ------ -----
<S> <C> <C> <C> <C>
Integrated Device Technology (Santa Clara) 2/12/96 57231 $1,560,886 N
UB Networks (Andover, MA) 3/4/96 57695 $580,268 Y-65183
7/18/96 60109 $8,900 Y-67291
8/19/96 60749 $17,900 Y-67290
(as Newbridge Networks) 6/19/97 4302 $66,537 N
Newbridge Networks (Kanata, Ontario) 6/19/97 4300 $97,686 N
Radix 4/26/96 58745 $1,032,874 N
5/13/96 59051 $885,939 Y-65528
5/14/96 59062 $250,042 N
5/28/96 59316 $0 N
7/25/97 5302 $7,627,200 N
7/25/97 5305 $247,328 N
Motorola (Austin) 4/30/96 58806 $499,415 N
(Austin) 12/26/96 63652 $158,466 Y-68909 (lease)
(Austin) 3/18/97 65075 $590,000 N
(Austin) 4/22/96 65662 $100,000 N
(Austin) 7/18/97 5166 $30,000 N
(Boynton Beach, FL) 7/23/96 60244 $392,696 N
(Boynton Beach, FL) 7/23/96 603267 $570,760 N
(Boynton Beach, FL) 7/23/96 60244 $293,696 N
(Plantation, FL) 1/30/97 64094 $1,880,330 N
(Plantation, FL) 3/10/97 64846 $230,000 N
(Plantation, FL) 3/10/97 64847 $237,865 N
(Plantation, FL) 3/24/97 65192 $237,865 N
(Plantation, FL) 4/28/97 65682 $280,000 N
Chipcom Corp. (Southborough, MA) 7/12/96 59210 $1,401,953 N
Digital Equipment Corp. (Hudson, MA) 6/20/96 59225 $1,246,632 N
(Littleton, MA) 6/19/96 59685 $765,113 N
(Littleton, MA) 6/19/96 59692 $317,351 N
AT&T (Holmdel, NJ) 6/6/96 59447 $378,200 N
Lucent Technologies (Piscataway, NJ) 8/23/96 60908 $265,415 N
(Naperville, IL) 11/27/96 63054 $609,711 N
Hughes Aircraft Co. (Los Angeles, CA) 9/19/96 61428 $4,631,125 N
9/20/96 61450 $3,093,750 N
National Semiconductor (Santa Clara) 11/1/96 62344 $498,648 Y-69314 ($590,952.72)
Cardiac Pacemakers (St. Paul, MN) 2/18/97 64439 $129,010 N
Hughes Missile Systems (Tucson, AZ) 4/9/97 65508 ?? N
Ericsson (RTP,NC) 4/24/97 65667 $374,870 N
4/24/97 65668 $210,000 N
Advanced Micro Devices (Austin, TX) 5/19/97 65788 $598,500 N
5/19/97 3275 $506,818 N
Adaptec (Milpitas, CA) 5/5/97 2942 $870 N(error)
7/2/97 4864 $462,896 N
Newbridge Networks (Kanata, Ontario) 6/19/97 4300 $97,686 N
Myotronx (Torrance, CA) 6/25/97 4540 $213,000 N
6/25/97 4542 $182,198 N
6/25/97 4565 $271,225 N
</TABLE>
Exhibit 15, Page 1 of 2
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
New Customer (unknown) 6/26/97 4608 $635,525 N
New Customer (unknown) 7/2/97 4863 $817,290 N
</TABLE>
Exhibit 15, Page 2 of 2
<PAGE>
As you may know, Quickturn Design Systems has made three announcements on
January 27, 1997. The Accelerated Verification business unit's position on these
announcements follows.
SpeedSim Merger
Recently, Quickturn announced a merger with SpeedSim, a cycle-based simulator
provider. This merger is a clear indicator that Quickturn is feeling pressure to
offer a more comprehensive verification environment. In fact, a quote from the
release states "Quickturn is changing from being an emulation company to being a
design verification company." The SpeedSim acquisition is a very limited step in
the right direction of providing a more comprehensive verification solution.
Quickturn has clearly fallen behind in the technology required to build a
comprehensive system verification solution. The company is playing catch up, but
an acquired cycle-based simulator coupled with limited emulation technology is
not a complete verification environment! Although SpeedSim has solid technology
for rapid verification, it is really limited to large scale synchronous circuits
normally found in large microprocessor design houses. This technology has not
been successfully deployed in the traditional system, board or ASIC design flows
normally found in telecom and datacom applications.
CoBALT-OEM arrangement with IBM
In yet another attempt to fill their technology gaps, Quickturn signed an
exclusive OEM agreement with IBM to offer an alternative to the company's
existing commercial FPGA-based systems. Quickturn is providing only software in
this arrangement while all the hardware will be supplied by IBM. Since IBM's
main business is still heavily related to the high-end computer market, it seems
very questionable that IBM would want to sell verification products to their
chief competitors. How long will it last? How responsive will IBM be to
problems?
CoBALT (Concurrent Broadcast Array Logic Technology) is limited to synchronous
designs that lend themselves to a cycle-based verification methodology and thus
will only appeal to high-performance CPU customers. It is based on a custom chip
designed by IBM in their 0.25 micron semiconductor process and is part of the
compiled-code logic emulation family with time multiplexed logic and
interconnect. Large synchronous designs are not very common, a fact that has
historically stood in the way of the broader adoption of the CoBALT technology.
This puts Quickturn into the position of having two incompatible solutions with
significant weaknesses. System Realizer is versatile but has slow design
iteration times, and CoBALT offers higher performance but places significant
constraints on design methodology.
Mentor's SimExpress actually offers customers the best of both technologies.
SimExpress has compile times and debug capabilities that are found in the CoBALT
product, while allowing the design flexibility and ICE capability of Quickturn's
System Realizer family of products.
SimExpress is based on a custom emulation chip and architecture, and with links
to Seamless and QuickHDL, we already offer our customers unsurpassed early
hardware and software debug, in-circuit verification for final integration and
validation, as well as intellectual property support.
Exhibit 16, Page 1 of 2
<PAGE>
Q/Bridge Software Tool
Q/Bridge is an interface for co-simulation. Q/Bridge is designed to enable
third-party vendors of electronic design automation tools to easily create
co-simulation interfaces between their products and Quickturn's Quest emulation
software environment. While we welcome creation of public interfaces that
facilitate improved overall verification solutions for the end user, some
skepticism about co-simulation performance is in order. Traditional hardware
emulators are very inefficient with co-simulation applications because the
start/stop operation consumes huge amounts of time relative to that of
emulation. SimExpress has been specifically optimized for co-simulation. Special
high-speed interface circuitry gets around traditional data transfer and
synchronization penalties, thus enabling fast co-simulation performance.
Clearly SimExpress offers the only complete solution for our customers, helping
them bridge the productivity gap between silicon availability and system
verification. We offer a custom emulation architecture, which is the backbone of
a comprehensive accelerated verification methodology. SimExpress is the only
solution that offers:
hardware and software co-verification
RTL (VHDL and Verilog-XL) acceleration
intellectual property support for emulation
in-circuit verification for final system integration and validation.
Truly-ACCELERATED VERIFICATION WITHOUT COMPROMISE!
As always, your comments are welcome. Happy Selling! Gabriele Pulini, Meta
Systems Director of Marketing Ext. 5232; John Ott, Accelerated Verification SBU
Director of Marketing-Ext. 1706.
Exhibit 16, Page 2 of 2
<PAGE>
EXHIBIT 17
[Customer Quotation for Digital Equipment Corporation; Exhibit 17, Page 1 of 2]
[Customer Quotation for Digital Equipment Corporation; Exhibit 17, Page 2 of 2]
Exhibit 17, Page 1 of 1
<PAGE>
EXHIBIT 18
[Order, UB Networks; Exhibit 18, Page 1 of 2]
[Order, UB Networks; Exhibit 18, Page 2 of 2]
Exhibit 18, Page 1 of 1
<PAGE>
PROOF OF SERVICE
I am employed in the County of Los Angeles, State of
California. I am over the age of 18 and not a party to the within action. My
business address is 633 West Fifth Street, Suite 4700, Los Angeles, California
90071-2066.
On October 05, 1998, I served the foregoing document described
as INTERIM SUPPLEMENTAL EXPERT REPORT OF JAMES MACK FOLSOM on each interested
party, as follows:
Sanjay Bhandari, Esq. Craig Allison, Esq.
LATHAM & WATKINS BROBECK, PHLEGER & HARRISON LLP
75 Willow Road 2200 Geng Road
Menlo Park, CA 94025 Palo Alto, CA 94303
(BY HAND DELIVERY - FEDERAL EXPRESS) I caused each such
envelope to be delivered by hand to the offices of the above
addressee(s).
Sanjay Bhandari, Esq.
LATHAM & WATKINS
75 Willow Road
Menlo Park, CA 94025
(BY FACSIMILE) I served a true copy of the foregoing document
on each interested party as set forth above via facsimile
((650) 463-2600).
Executed on October 05, 1998, at Los Angeles, California. I declare under
penalty of perjury that the foregoing is true and correct.
Elaine Chacon Acuna /s/ Elaine Chacon Acuna
- ------------------------------------- --------------------------
(Name)
<PAGE>
EXHIBIT A
BLAINE F. NYE
535 Middlefield Road, Suite 100
Menlo Park, California 94025
(415) 322-4568
PROFESSIONAL BACKGROUND
Stanford Consulting Group, Inc., President
Economic consultant specializing in finance, economics, valuation, insurance,
and econometrics. Project experience includes:
Numerous analysis of economic damages suffered by parties to business
litigation involving intellectual property rights, including patents,
copyrights, and trademarks. Damage analyses have included consideration
of lost profits, price erosion and reasonable royalty, and in all
combinations.
Numerous company valuations, including valuations of assets and
liabilities, to determine fair market values and pricing. Analyses have
been used in arms-length pricing and in litigation, generally involving
disputes over the value of equity.
Economic analysis and testimony relative to asset values, including
loans and their probable collection and real estate, and alleged
fraudulent misrepresentations of a large failed savings and loan
association.
Economic analysis and testimony in very large class-action suit
relative to financial condition, asset values, investment portfolio,
and alleged fraudulent misrepresentations made by consultants and
accountants of large failed savings and loan association.
Numerous analyses of economic damages suffered by parties to business
litigation involving issues relative to product liability, antitrust,
fraud, wrongful contract termination, theft of trade secrets, unfair
competition, and business valuation.
Economic analysis of damages suffered by large timber trust as the
result of alleged trust mismanagement by large Mid-Western trust
management firm.
Multiple valuation analyses at request of FSLIC for
acquisition/divestiture purposes in dealing with troubled savings and
loan associations in the Midwest.
Merger and acquisition analysis relative to takeover by large foreign
interests of foreign company which owns major U.S. property and
casualty insurer. Acquisition plan entailed spin off of insurer to
French insurance interests. Performed relevant analyses and prepared
testimony before the insurance departments of nine states requiring
hearing and approval of proposed change in ownership.
<PAGE>
Numerous large securities litigation cases. Worked on development and
application of economic technology to successfully resolve issues
including timing of information releases, materiality of information,
class period, class certification, trading behavior, and extent of
damages.
Profitability and dealership location analyses for U.S. division of a
large foreign automaker. Developed econometric model permitting
prediction of total profits within geographic area based on population
demographics, market penetration, dealership services, dealership
separation and competition.
Performed feasibility studies for small group health and auto physical
damage insurance futures proposed for trading by the Chicago Board of
Trade. Performed analysis of the impact of insurance futures on demand,
pricing and market structure in relevant insurance markets.
Analysis of economic damages suffered by U.S. manufacturer as a result
of alleged false advertisement on the part of its major competitor.
Relevant damages included profits on lost sales, damage to profit
margin, and damage to overall market.
Product introduction strategy for large U.S. telecommunications firm.
Performed market analysis, product development, cost analysis, and
pricing for new line of telecommunications service products.
Performed expense and profitability analyses of servicing carriers for
a large state insurance joint underwriting association. Analyses served
as basis for testimony in litigation involving issues relative to
alleged excess profits earned by the servicing carriers.
Performed profitability, appropriate underwriting margin, and cost of
capital analyses and testimony for major property and casualty
insurance companies in various states, at the request of companies,
state departments of insurance, and a national insurance rating
organization for use in state regulatory hearings into these matters.
Feasibility of employee plant buyout from major U.S. corporation for
union in conjunction with State of California. Analyzed production,
product market, and operating costs, and developed profitable plan of
operations.
Analysis of the economic damages suffered by a large general agency as
a result of the alleged unfair competitive practices of three major
U.S. life insurers.
Numerous analyses of economic damages to various involved parties in
wrongful death litigation, personal injury litigation, wrongful
termination litigation.
Study of level of competition inherent in the California automobile
insurance market on behalf of consortium of major U.S. automobile
insurers. Study also included analysis of
2
<PAGE>
effects of various alternative changes to existing regulatory regime
that had been proposed by special interest groups.
Study of taxation of the life insurance industry in California relative
to other California industries and life industries in other states.
Performed analyses of life industry market structure, nominal vs.
effective tax rates, and tax incidence and shifting. Performed similar
study for the California property/casualty insurance industry.
Several cases involving the evaluation of economic damages suffered by
owners of large building complexes due to the presence of allegedly
friable asbestos. The analyses included estimation of the present costs
of removing or otherwise treating asbestos under alternative scenarios
and evaluating claims for economic damages.
Diversification strategy for large Western telecommunications firm.
Identification and valuation of appropriate acquisition candidates,
including analysis of merger premiums that could be paid based on
anticipated synergy.
3
<PAGE>
ARTICLES
"The Distribution of Claims for Professional Malpractice--Some Statistical and
Public Policy Aspects," with E. C. Venezian and A. E. Hofflander. Journal of
Risk and Insurance 56:4 (December, 1989), pp. 686-701.
"Medical Malpractice: Problems in the Insurance and Legal Systems," with A. E.
Hofflander. The Journal of Insurance Issues and Practices 12:2 (June, 1989), pp.
1-21.
"Experience Rating in Medical Professional Liability Insurance: Authors' Reply,"
with A. E. Hofflander. Journal of Risk and Insurance 56:2 (June, 1989), pp.
333-335.
"Experience Rating in Medical Professional Liability Insurance," with A. E.
Hofflander. Journal of Risk and Insurance 55:1 (March, 1988), pp. 150-157.
"An Analysis of Premium Tax Revenue and Rate in California: the Case of
Structured Settlement Annuities," with A. E. Hofflander. Journal of Risk and
Insurance 54:4 (December, 1987), pp. 760-766.
"Economics of Oligopoly: Medical Malpractice Insurance as a Classic
Illustration," with A. E. Hofflander. Journal of Risk and Insurance 54:3
(September, 1987), pp. 502-519.
"Demand and Pricing for Health Care and Guaranteed Insurability." University of
Microfilms International (January, 15, 1985).
"Self-insurance, Captives, and Income Taxation," with A. E. Hofflander. Journal
of Risk and Insurance 51:4 (December, 1984), pp. 702-709.
"Economic Analysis of Discriminatory Premium Taxation," with A. Hofflander and
C. Zollinger. Journal of Insurance Regulation 3:1 (September, 1984), pp. 3-29.
MONOGRAPHS
A Reevaluation of the California Workers' Compensation Rating Law, with A. E.
Hofflander and P. H. Sullivan. Association of California Insurance Companies,
Sacramento, 129 pp. (1992).
Small Group Health Insurance Futures, with A. E. Hofflander and J. D.
Nettesheim. Feasibility study for the Chicago Board of Trade, Chicago, 75 pp.
(1991).
Auto Physical Damage Insurance Futures, with A. E. Hofflander and J. D.
Nettesheim. Feasibility study for the Chicago Board of Trade, Chicago, 92 pp.
(1991).
California Taxation of the Property/Casualty Insurance Industry, with A. E.
Hofflander and L. B. Charlesworth. American Insurance Association, Association
of California Insurance Companies, and Personal Insurance Federation of
California, Washington, D.C., 23 pp. (1991).
4
<PAGE>
The Taxation of the California Life Insurance Industry, with A. E. Hofflander
and L. B. Charlesworth. Association of California Life Insurance Companies,
Sacramento, 85 pp. (1989).
An Economic Analysis of the California Insurance Initiatives, with A. E.
Hofflander and L. B. Charlesworth. National Association of Independent Insurers
and Association of California Insurance Companies, Sacramento, 122 pp. (1988).
Level of Competition in the California Private Passenger Automobile Insurance
Market, with R. H. Litzenberger. Association of California Insurance Companies,
Sacramento, 126 pp. (1986).
An Evaluation of the California Workers' Compensation Rating Law, with A. E.
Hofflander and P. H. Sullivan. Association of California Insurance Companies,
Sacramento, 147 pp. (1986).
Medical Malpractice Insurance in Pennsylvania, with A. E. Hofflander. Select
Committee on Malpractice (joint committee of the Pennsylvania Bar Association,
Pennsylvania Medical Society, and Pennsylvania Hospital Association) 140 pp.
(1985).
5
<PAGE>
EXHIBIT B
Testimony of Blaine F. Nye, Ph.D.
- ---------------------------------
April 29, 1997
Flint v. Citicorp/Citibank
Testimony 1/13/93
d'Elia v. d'Elia
Deposition 2/1/93
Testimony 2/24/93
Pacific Mutual Life Insurance Co., et al. v. State Board of Equalization
Testimony 2/16/93
Burton, et al. v. Bristol-Myers, et al.
Deposition 3/2/93
Testimony 8/30/93
United Telecommunications Inc. Securities Litgiation; case no. 90-2551-0
Deposition 3/11/93
Trizec Properties v. W.R.Grace & Co., et al.
Deposition 6/2/93
Ansteph, Inc. v. Penguin's Place, Inc., et al; case no. 61 03 41
Deposition 7/12/93
Freeman & Associates, Inc. v. Ferguson, et al.
Deposition 10/18/93
Deposition 9/2/93
Smejkal v. Mitsubishi Aircraft International, Inc. et al.
Testimony 11/3/93
Marlin v. Murdoch
Testimony 11/4/93
Fortino Flores v. Post Street Associates, et al.
Deposition 12/3/93
Arami Rigatuso v. Delta Airlines, Inc.; case no. C92-3644-HMP ARB
Deposition 12/10/93
BOC Healthcare v. Nellcor Inc.
Deposition 1/5/94
<PAGE>
County of San Diego v. W.R. Grace & Co. - Conn, et al.; case no. 208 188
Deposition 1/14/94
California Federal Bank, F.S.B. v. W.R. Grace & Co. - Conn; case no. C 728 819
Deposition 3/2/94
Commonwealth of Massachusettes v. Owens Corning Fiberglass Corproation, et al.;
case no. 90 -3791
Deposition 3/18/94
Randy Bertisch v. City of Los Angeles
Deposition 3/23/94
Testimony 3/27/94
Julie Lockhart v. The Regents of the University of Califrnia
Deposition 4/18/94
Masood Haque, Anne E. Hauque v. University of California, San Francisco, Moffitt
Hospital, et al.
Testimony 4/26/94
James Garewal v. Industrial Ladder Company, et al.
Testimony 6/9/94
Hilo, et al. v. Exxon, et al.; case no. CV-92-4408 RMT (SHX)
Deposition 7/20/94
Testimony 4/1/96
Fujisaka v. Livermore, et al.
Deposition 8/10/94
Century Park v. California Zonolite Co., Inc., et al.
Deposition 8/29/94
Catherine Weston Stocker v. Pacific Gas & Electric, et al.
Deposition 9/14/94
Industrial Indemnity Company, et al., v. Apple Computer, Inc., et al.
Deposition 10/20/94
Deposition 1/31/95
Huckin v. Connor; case no. 88-036106
Deposition 11/1/94
<PAGE>
Cox v. El Paso Natural Gas
Deposition 11/7/94
Storage Technology Corporation Securities Litigation
Deposition 11/11/94
Charles Reilly v. American Medical International, Inc.
Testimony 1/25/95
Coello v. Lyman Dean Construction Company, et al.
Deposition 2/14/95
Anderson v. PG&E; case no. BCV00300
Testimony 2/22/95
Richard Ahrendt v. Abex Corporation
Deposition 2/27/95
Faith Pescatore v. Pan American World Airways, Pan American World Services, and
Alert Management Systems
Deposition 3/3/95
Testimony 4/13/95
Paul Acree, et al. v. General Motors Acceptance Corporation; case no. 531927
Deposition 3/24/95
Deposition 3/31/95
Deposition 5/5/95
Deposition 6/5/95
Testimony 6/13/95
Testimony 6/27/95
Testimony 6/28/95
Deposition 10/16/95
Testimony 10/24/95
Testimony 10/26/95
Deposition 11/15/95
Testimony 12/4/95
Testimony 12/5/95
Testimony 12/11/95
One Wilshire Arcade Imperial, Ltd. v. W.R. Grace & Company, et al.
Testimony 4/7/95
Reed v. Orteza
Deposition 4/14/95
<PAGE>
Karen Magliocco v. PG&E
Deposition 5/8/95
Keith Pinn v. Par Development
Deposition 5/10/95
Raymond Humecke v. Abex Corporation
Deosition 5/19/95
Kyle Richmond v. Abex Corporation
Deposition 5/19/95
Coello v. Greer Neuwald Builders
Deposition 9/28/95
Collins v. United States; case no. C94 2191 WHO
Deposition 9/7/95
Synopsis, Inc. v. Paul E. Hubbard, Greg Ordy and Seed Solutions
Deposition 9/11/95
California State Automobile Association Inter-Insurance Bueau v. Policy
Management Systems Corporation; case no. C93-4232-CW ENE
Deposition 9/12/95
Deposition 9/13/95
Deposition 3/13/96
Transamerica Insurance Corporation of California, et al., v. W.R. Grace & Co. -
Conn.; case no. C94-4083 VRW
Deposition 11/9/95
Melvyn Gantman v. Fidelity Management Trust Company; case no. C94-3692-SBA
Deposition 2/12/96
Deposition 2/13/96
Golden Eagle Insurance Company Proposition 103 Hearing; case no. RB-94-0010-00
Testimony 3/15/96
Ramachandran, et al. v. Thai Airways, et al.; case no. C-94-2644 SC and
C-95-0082 SC
Deposition 5/14/96
Testimony 6/17/96
<PAGE>
John King & Lurine King, et al., National Benevolent Association of the
Christian Church, et al.; case no. H-181238-7
Deposition 7/9/96
Brooks vs. Allied Signal, Inc., et al.; case no. 2:94-CV-24
Deposition 2/19/97
Hamre vs. Fibreboard, et al.; case no. BC 126 838
Deposition 4/11/97
Belur vs. United States; case no. C-95-4521 CAL
Deposition 4/24/97
<PAGE>
EXHIBIT C
CONTAINS BUSINESS PROPRIETARY INFORMATION
UNITED STATES INTERNATIONAL TRADE COMMISSION
Washington, D.C.
In the Matter of
CERTAIN HARDWARE LOGIC EMULATION
SYSTEMS AND COMPONENTS THEREOF Inv. No. 337-TA-383
COMMISSION OPINION ON REMEDY, THE
PUBLIC INTEREST, AND BONDING
We have determined to adopt the presiding administrative law judge's
(ALJ) initial determination (ID) concluding that there is reason to believe that
there is a violation of section 337 in the importation, sale for importation, or
sale in the United States after importation of the accused hardware logic
emulation systems.1 Specifically, we adopt the ALJ's finding that it is likely
that the patents in issue are valid and infringed by respondents' imported
hardware logic emulation systems. We also adopt the ALJ's finding that
complainant, Quickturn Design Systems Incorporated, a relatively small, single
product company competing in the rapidly evolving hardware logic emulation
market, is threatened with irreparable harm in the event temporary relief is not
granted.
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1 These systems consist of reconfigurable logic devices, linked by
reconfigurable interconnect devices, that can be programmed to replicate the
operation of an integrated circuit ("IC") design to determine its performance
characteristics under conditions that closely approximate the actual intended
use. In other words, an emulation system configured with a particular circuit
design can be connected to an external system (or "target" system) for which
the circuit is designed, permitting the circuit to be tested under actual
operating conditions (a process known as going "in-circuit"). The emulator's
ability to verify the operation of a circuit design before actual fabrication
of a prototype device results in substantial savings of development time and
costs.
<PAGE>
Having determined that temporary relief is warranted, we also determine
that a temporary limited exclusion order and a cease and desist order are the
appropriate forms of temporary relief. We have further determined that the
statutory public interest factors do not preclude the issuance of such relief
and that respondents' bond during the period of the limited temporary exclusion
order shall be in the amount of forty-three (43) percent of the entered value of
infringing imported hardware logic emulators and components thereof. Finally, we
have determined that the complainant's bond-shall be in the amount of $200,000.
This opinion explains the basis for determinations.
I. PROCEDURAL BACKGROUND
On March 4, 1996, Quickturn Design Systems Incorporated ("Quickturn" or
"complainant") filed a complaint under section 337 of the Tariff Act of 1930 (19
U.S.C. ss. 1337) alleging unfair acts in the importation, the sale for
importation, and the sale within the United States after importation of certain
hardware logic emulation systems and components thereof by two proposed
respondents: Mentor Graphics Corporation ("Mentor") of Wilsonville, Oregon and
Meta Systems ("Meta") of Saclay, France (collectively "respondents").
Complainant also simultaneously filed a motion for temporary relief.
In the motion for temporary relief complainant alleged infringement of
claims 1, 2, 3, and 15 of U.S. Letters Patent 5,448,496 (the "`496 patent") and
claim 8 of U.S. Letters Patent 5,036,473 (the "`473 patent") both owned by
Quickturn. On March 8, 1996, the Commission voted to institute an investigation
of the complaint and to accept provisionally the motion for temporary relief,
and published a notice of investigation in the Federal Register.2 The temporary
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2 61 Fed. Reg. 9486 (March 8, 1996).
<PAGE>
relief phase of this investigation was designated "more complicated" by the
presiding ALJ on April 14, 1996 (Order No. 14). The ALJ held an evidentiary
hearing on temporary relief from April 23, 1996, through May 4, 1996.
Complainant, respondents, and the Commission investigative attorney (IA)
participated in the hearing. Thereafter, oral argument was held before the ALJ
on June 5, 1996. The Commission received submissions on the issues of remedy,
the public interest, and bonding from all parties on June 23, 1996, in
accordance with Commission rule 210.67(b).
On July 8, 1996, the ALJ issued his ID (Order No. 34) granting
Quickturn's motion for temporary relief On July 18, 1996, respondents and the IA
filed written comments on the temporary relief ID, as provided for in rule
210.66(c). Complainant and the IA filed replies to respondents' comments, and
respondents filed a reply to the LA's comments on July 22, 1996, as provided for
in rule 210.66(e). On August 5, 1996 the Commission determined to adopt the
presiding ALJ's ID.
II. REMEDY
If there is reason to believe that a violation of section 337 has
occurred (and the public interest factors discussed below do not prohibit a
remedy), the Commission has broad discretion in selecting the form, scope, and
extent of the remedy.3 Under subsections 337(e) and (f), the
- ---------------------
3 Hyundai Electronics Industries Col, Ltd. v. United States International
Trade Commission, 899 F.2d 1204 (Fed. Cir. 1990) (affirming Commission remedy
determination in Certain Erasable Programmable Read-Only Memories, Components
Thereof, Products Containing Such Memories, and Processesor Making Such
Memories, Inv. No. 337-TA-276, USITC Pub. 2196 (May 1989)); Viscofan, S.A. v.
United States International Trade Commission, 787 F.2d 544, 548 (Fed. Cir.
1986) (affirming Commission remedy determination in Certain Processes for the
Manufacture Skinless Sausage Casings and Resulting Products, Inv. Nos.
337-TA- 148 and 169, USITC Pub. 1624 (December 1984)). However, as the
Commission stated in Certain Devices for Connecting Computers Via Telephone
Lines, although the Commission's remedial authority is quite broad, it has
applied this authority "in measured fashion and has issued only such relief
as is adequate to redress the harm caused by the prohibited imports." Inv.
No. 337-TA-360, Commission Opinion (Dec. 12, 1994) at 9.
<PAGE>
Commission may issue a temporary exclusion order, a cease and desist order, or
both, depending on the circumstances of each investigation.4 The Commission may
issue either a temporary general exclusion order, which covers goods
irrespective of source, or a temporary limited exclusion order, which covers
goods from only certain foreign sources.5
- -----------------------------
4 Section 337(e)(1), 19 U.S.C.ss.1337(e)(1), provides in relevant part:
If, during the course of an investigation under this section, the
Commission determines that there is reason to believe that then is a
violation of this section, it may direct that the articles concerned,
imported by any person with respect to whom there is reason to believe
that such person is violating this section, be excluded from, entry
into the United States. . . . Section 337(f)(1) provides:
In addition to, or in lieu of, taking action under subsection (d)... of
this section, the Commission may issue and cause to be served on any
person believed to be violating this section . . . an order directing
such person to cease and desist from engaging in the unfair methods or
acts involved [unless precluded by consideration of enumerated public
interest factors.]
5 19 U. S. C. ss. 1337(d)(2)(effective January 1, 1995); see also 19 C.F.R
ss.210.50(c) (incorporating the statutory standard into the Commission's
Rules of Practice and Procedure). Under this provision, the Commission can
issue a general exclusion order only where it is "necessary to prevent
circumvention of an exclusion order limited to products of named persons; or
there is a pattern of violation of this section and it is difficult to
identify the source of infringing products." This limitation on the
Commission's authority to issue general exclusion orders appears in the
section of the statute pertaining to permanent exclusion orders, section
337(d), rather than in the section that grants the Commission authority to
issue temporary relief, section 337(e). Nevertheless, notwithstanding the
placement of this provision in the statute, we believe that it was intended
to apply equally to permanent and temporary general exclusion orders. The
legislative history of the Uruguay Round Agreements Act (URAA) amendments to
section 337 indicates that the new statutory limitations "do not differ
significantly" from the Commission's traditional framework for analyzing the
appropriateness of a general exclusion order, which was applied in the same
manner to both temporary and permanent relief. See S. Rep. No. 412, 103rd
Cong., 2d Sess. 120 (1994); H.R. Rep. No. 826, 103rd Cong., 2d Sess., pt. 1,
at 141 (1994).
<PAGE>
The Commission traditionally has issued cease and desist orders when
commercially significant inventories of infringing goods are present in the
United States.6
Commission rule 210.67(a) authorizes, but does not require, the ALJ to
address the appropriate remedy and the public interest.7 In this investigation,
the ALJ concurred with the IA's positions regarding the appropriate remedy,
which are discussed below.
Complainant Quickturn argued that issuance of an exclusion order is
appropriate to prevent infringing imports and is the customary remedy where
temporary relief is granted. Quickturn seeks such an order only with respect to
respondents in this matter (i.e., a limited exclusion order), acknowledging that
there is no basis for issuance of a general exclusion order at this stage of the
investigation. With respect to a cease and desist order, complainant argued that
- -------------------
6 See, e.g., Pressure Transmitters, Inv. No. 337-TA-304, USITC Pub. 2392
(June 1991); Certain Strip Lights, Inv. No. 337-TA-287 (October 3, 1989)
(Unpublished opinion); Certain Nonwoven Gas Filter Elements, Inv. No.
337-TA-275, USITC Pub. 2129 (September 1988); Certain Compound Action Metal
Cutting Snips, Inv. No. 337-TA-197, USITC Pub. 1831 (March 1986); Certain
High Intensity Retroreflective Sheeting, Inv. No. 337-TA-268, USITC Pub. 2121
(September 1988); Certain Erasable Programmable Read Only Memories, Inv. No.
337-TA-276, USITC Pub. 2196 (May 1989)(while the existence of significant
inventories was not conclusively proven, it could be reasonably assumed from
the record that such inventories were present); Certain Crystalline
Cefadroxil Monohydrate, Inv. No. 337-TA-293 (March 1990).
The Commission's purpose in issuing cease and desist orders in
patent-based cases has been to afford complete relief to complainants where
infringing goods are already present in the United States, and thus cannot be
reached by issuance of an exclusion order. See, e.g., Certain Compound Action
Metal Cutting Snips, Inv. No. 337-TA-197, Commission Opinion at 5-7. Unlike
an exclusion order, which is enforced by the U.S. Customs Service, a cease
and desist order is an in personam order typically directed to a party in the
United States and is enforced by the Commission, not Customs. The Commission
has in personam over respondent Mentor, a company doing business at 8005 S.W.
Boeckman Road, Wilsonville, Oregon, 97070, based on proper service of the
complaint and notice of investigation and Mentor's full participation in this
investigation.
<PAGE>
it has provided ample evidence that respondents am engaged in significant sales
and solicitation activities in the United States and that any further
solicitation and marketing activities by Mentor would constitute continued
infringement of the patents in issue. Complainant also submitted a copy of a
publication in which respondents indicated that, in the event temporary relief
issues, they may "establish[] U.S.-based assembly" for the accused device.
Respondents argued that, if a temporary exclusion order issues, the
order should exempt replacement parts and "components required to upgrade
existing systems", as well as service and maintenance of existing systems in the
United States. In support of this position, they state that if their U.S.
customers (such as Bull Information Systems) are unable to obtain replacement
parts or components needed to upgrade their systems, they would incur major
delays in ongoing projects and damage to their business.8 For the same reasons,
they state that any exclusion order should ensure that respondents may continue
to service and maintain existing systems in the U.S.
Respondents also argued that there is no basis for a temporary cease
and desist order because there is no evidence that Mentor has any domestic
inventory. In particular, respondents submitted a statement from a Mentor
employee stating that Mentor's "standard procedure is that upon receipt of a
customer order, a Meta machine is built in France in response to the customer's
specifications and then shipped to United States." In addition, respondents
argued that, to the extent that they are permitted to import under bond during
the temporary relief period, a cease
- -----------------------------
7 Any findings made by the ALJ may be superseded by Commission findings.
19 C.F.R.ss.210.67(a).
8 Comments on remedy submitted to the Commission by intervenor Bull HN
Information Systems emphasized that Bull has an on-going need for replacement
parts, including logic boards, for its Meta emulator that is in operation in
Phoenix, Arizona.
<PAGE>
and desist order preventing general sales and marketing activities would be
outside the Commission's statutory jurisdiction.
In the IA's view, the appropriate relief is a limited exclusion order
directed to respondents' emulation system, and components thereof, that the
Commission has reason to believe infringe the asserted claims of the patents at
issue. The IA noted that there are substantial capital investments associated
with Meta emulators installed in the United States as of the date of entry of
temporary relief, as well as employment and on-going research and development
projects, principally by Meta's customer Bull, that are dependent upon the
operation of those emulators. On that basis, the IA recommended that the
temporary exclusion order include an exception for importation of emulator
components that respondents certify are required for repair of emulators already
installed in the United States.
The IA also believes that a cease and desist order prohibiting sales
(except under bond) of Meta emulators present in the United States as of the
date of entry of the order is appropriate. According to the IA, as of the date
of the temporary relief proceedings, respondents had a domestic supply of at
least three operational Meta emulation systems. The IA further stated that the
commercial significance of the accused Meta emulators that in present in the
United States is substantial (based on the substantial capital cost of these
devices) and that therefore the sale of these emulators is likely to irreparably
harm Quickturn. Accordingly, the IA recommended that a cease and desist order
prohibiting the sale or other transfer (except under bond) of Meta emulators
held by the respondents within the United States at the date of issuance is
appropriate in this investigation. The IA submitted, however, that any such
cease and desist order should be narrowly tailored to prohibit only sales and
similar transfers except under bond, rather than the
<PAGE>
broad array of commercial activities Quickturn seeks to prohibit. Specifically,
the IA recommended that any case and dam order should not prohibit respondents'
marketing, sales, and support activities that are directed to goods imported or
sold under bond. Finally, for the reasons discussed above in connection with the
irreparable harm analysis, the IA does not believe that the public interest
would be harmed by issuance of the proposed exclusion and cease and desist
orders.
We agree with the ALJ's and the IA's recommendation and accordingly
have issued a temporary limited exclusion order covering the accused hardware
logic emulators, in assembled or unassembled form, that we have found likely to
infringe claim 8 of the `473 patent and/or claims 1, 2, 3, or 15 of the `496
patent. We also agree that the temporary limited exclusion order should not
extend to components, such as logic boards, certified to be imported to replace
and repair inoperative components on one of the five Meta units present in the
United States (three held by Mentor and two by its customers).9 Such an
exception would prevent disruption to the business operations of Mentor's
customers during the pendency of this investigation, and grant them time to
prepare for the possibility of a permanent exclusion order, which probably would
not include such an exception.
We agree as well with the ALJ and the IA regarding the appropriateness
of issuing a temporary cease and desist order. Thus, we have determined to issue
a cease and desist order prohibiting domestic respondent Mentor from importing,
selling, distributing, offering for sale, or otherwise transferring in the
united Sates (except under bond) hardware logic emulators
- -------------------------
9 The temporary limited exclusion order makes it clear that it extends to the
importation of subassemblies, other than those required as a one-for-one
replacement of their counterparts in existing systems.
<PAGE>
covered by the patent claims at issue.10 We believe that the presence of even
one of the Meta units (at an estimated value of more than $500,000) in the
United states would constitute "commercially significant inventory," which the
Commission traditionally has found warrants the issuance of a cease and desist
order.
While respondents have represented that these units are not "inventory"
in that their as "standard procedure is that upon receipt of a customer order, a
Meta machine is built in France in response to the customer's specifications and
then shipped to the United States," they do not state that the units in the
United States could not or will not be converted for sale to a customer. In
addition, they have actively opposed the issuance of a cease and desist order.
In these circumstances, and because the Commission's purpose in issuing cease
and desist orders has been to afford complete relief to complainants where
infringing goods are already present in the United States, we believe it
appropriate in this case to issue such an order.11
We also agree with the IA that such an order should not extend to
respondents' marketing and promotional activities in the United States. Unlike a
permanent exclusion order, a temporary "exclusion order" actually must permit
importations under bond. Accordingly, because respondents are statutorily
entitled to import bond goods that are subject to a temporary exclusion order,
the incidental right to market those devices should not be prohibited by the
- -------------------------
10 As noted below, however, under the cease and desist order Mentor is
permitted to conduct activities directly related to the sale of accused
devices imported under bond during the period in which temporary relief
would be effective. Mentor also is permitted to furnish services to its
customers that are directly related to the accused devices it imported and
sold in the United States prior to the effective date of the cease and
desist order, including the installation of replacement logic boards.
11 Moreover, we note that if, as respondents have represented, the Meta units
held by Mentor in the U.S. are not suitable for domestic sale, respondents
will not be harmed by the issuance of a cease and desist order.
<PAGE>
temporary cease and desist order. For the same reasons that we believe the
temporary exclusion order should not extend to replacement components, such as
logic board assemblies, we also believe that any cease and desist order issued
should not cover respondents' activities in connection with servicing its
customers' imported Meta emulators, including the installation of such
replacement components.
III. THE PUBLIC INTEREST
Before granting relief, the Commission must consider the effect that
such relief would have on "the public health and welfare, competitive conditions
in the United States economy, the production of like or directly competitive
articles in the United States, and United States consumers."12 The legislative
history of this provision indicates that the Commission should decline to issue
relief when the adverse effect on the public interest would be greater than the
interest in protecting the patent holder.13
The ALJ found that: (1) Quickturn is capable of supplying the hardware
logic emulation requirements of domestic users; (2) there is no significant
likelihood that temporary relief would substantially impact the industries that
purchase hardware logic emulation systems (i.e., the U.S. semiconductor
industry); (3) it is in the public interest to issue temporary relief to protect
a domestic industry's valid and exclusive rights in its intellectual property,
and (4) the statute
- -----------------------
12 19 U.S.C. ss.ss. 1337(d) and (f). See also Rosemount v. United States
Int'l Trade Comm'n, 15 U.S.P.Q.2d at 1572, 910 F.2d 819 (Fed. Cir.
1990)("Rosemount"). In Rosemount, the Federal Circuit, in affirming the
Pressure Transmitters decision, stated:
We also agree with the Commission's rejection of the view that the
public interest inevitably lies on the side of the patent owner because
of the public interest in protecting patent rights ... other public
interest factors are delineated in the above-quoted section 1337(e)(1)
and must be taken into account.
Rosemount, 910 F.2d at 822, 15 U.S.P.Q.2d at 1572.
<PAGE>
provides, that in the event of the grant of temporary relief, respondents will
be permitted to import the devices under bond and therefore the domestic
industry, if it wants to, will have access to the Meta emulators. Based on then
findings, the ALJ concluded that the public interest favors the granting of
temporary relief.
Complainant and the IA both submit that entry of temporary relief in
the form of a limited exclusion order directed to infringing hardware logic
emulators and a cease and desist order directed to Mentor would not raise any
public interest concerns under 19 U.S.C. ss.ss. 1337(e) or (f). They note that
there is no evidence that the U.S. demand for such products could not be
supplied by complainant. They also argued that the U.S. semiconductor industry
would not be harmed by the issuance of such temporary relief, principally
because only a small portion of that industry uses hardware logic emulation.
Respondents argue that the public interest would be furthered by
ensuring that the technically superior Meta device will continue to be available
to the U.S. semiconductor industry during the period of temporary relief. In
particular, they argue that the Meta emulator's shorter "compile times" allow
much greater flexibility and functionability in the design process and provide a
significant technological advantage over Quickturn's emulators. Therefore,
according to respondents, even if Quickturn could satisfy the current U.S.
demand for traditional emulation products, granting temporary relief would
"force the U.S. chip industry to use Quickturn's outdated off-the-shelf chip
technology, while Meta's innovative custom-chip technology is freely available
to our foreign competitors in Europe and Asia."
- -------------------------
13 See S. Rep. 1298, 93rd Cong., 2d Sess. 197 (1974).
<PAGE>
Based on the evidence of record, we agree that the issuance of a
limited exclusion order and a cease and desist order to Mentor would not have an
adverse effect on the public interest. First, as the ALJ noted, the public
interest favors the protection of U.S. intellectual property rights.14 Second,
only a relatively small percentage of the 60 billion dollar U.S. semiconductor
industry uses hardware emulation, due to the high cost of emulators. The
evidence indicates that complainant can supply this demand for hardware logic
emulators in the U.S. market. Even more to the point, respondents have indicated
that they expect to supply about eight units to the U.S. market in 1996.15 We do
not believe that the U.S. semiconductor industry would be significantly
adversely affected if either Quickturn supplied these eight emulators or these
purchases were delayed pending the outcome of the permanent relief phase of this
investigation. Indeed, these purchases need not be delayed to the extent that
respondents' products could enter the United States upon the posting of a bond
even under a grant of temporary relief.
Finally, hardware logic emulators are not the type of product that has
in the past raised public interest concerns (such as, for example, drugs or
medical devices) and we are not aware of
- ------------------------
14 See Rosemount, 15 U.S.P.Q.2d at 1572 (Fed. Cir. 1990)(patent protection is a
dominant factor in determining the public's interest in granting relief). In
this regard, we also note that the Commission has declined to grant relief
on public interest grounds in only three cases in 20 years. In Certain
Automatic Crankpin Grinders, Inv. No. 337-TA-60, U.S.P.Q. 71 (ITC 1979), the
Commission denied relief because of an overriding national policy interest
in maintaining and increasing the supply of fuel efficient automobiles,
coupled with the domestic industry's inability to supply domestic demand. In
Certain Inclined Field Acceleration Tubes, Inv. No. 337-TA-67, USITC Pub.
1119 (1980), the Commission denied relief because there was an overriding
public interest in continuing basic atomic research using the imported
acceleration tubes, which were of a higher quality than the domestic
product. Finally, in Certain Fluidized Supporting Apparatus, Inv. No.
337-TA- 182/188, USITC Pub. No. 1667 (1984), the Commission denied relief
because the domestic producer could not supply demand for hospital beds for
burn patients within a commercially reasonable time, and no therapeutically
comparable substitute for care of burn patients was available.
<PAGE>
any other public interest concern that would militate against entry of the
remedial orders we have determined to issue. Accordingly, we conclude that the
statutory public interim factors do not preclude issuance of relief in this
investigation.
IV. COMPLAINANT'S BOND 16 17
Section 337(e)(2) gives the Commission the authority to require a
complainant to post a bond as a prerequisite to the granting of temporary
relief.18 Commission rule 210.52(c) provides as follows:
In determining whether to require a bond as a prerequisite to the
issuance of temporary relief, die Commission will be guided by Rule 65
of the Federal Rules of Civil Procedure. 19
The ALJ found, based on the record developed in the temporary relief
phase of the investigation, that complainant has made a showing of a strong
likelihood of success on all of the issues affecting the merits of the case. In
particular, complainant's strong showing with respect to validity and
infringement of the claims in issue, the fact that Mentor and Meta had a
- --------------------------
15 Thus, while these eight units could have a substantial effect on Quickturn,
they are far less significant to the approximately $60 billion U.S.
semiconductor industry.
16 Commissioner Newquist does not join the following discussion regarding
complainant's bond. He would not require complainant to post a bond.
17 Commissioner Crawford does not join the Commission's opinion respecting
complainant's bond. Instead, she would have accepted the ALJ's
recommendation on this issue.
18 Section 337(e)(2) provides that, when a complainant has been granted
temporary relief, "[t]he Commission may require the complainant to post a
bond as a prerequisite to issuance of a [temporary relief] order under this
subsection."
19 19 C.F.R.ss.210.52(c). Rule 65(c) of the Federal Rules of Civil Procedure
states in pertinent part that:
No restraining order or preliminary injunction shall issue except upon
the giving of security by the applicant, in such sum as the court deems
proper, for the payment of such costs and damages as may be incurred or
suffered by any party who is found to have been wrongfully enjoined or
restrained.
<PAGE>
reasonable opportunity to consider the claims in issue prior to importing the
accused goods into the United States, and Mentor's resolve to enter the U.S.
hardware logic emulator market, persuaded the ALJ that no bond should be
required of Quickturn, and he so recommended.
Complainant argued that its strong likelihood of success on the merits
and its financial condition justify waiver of a bond. Alternatively, complainant
argued that if the Commission should determine that a bond is required, it
should be no greater than $250,000 because (a) the potential harm, if any, to
respondents is minimal, (b) the speculative nature of respondents' potential
damage, if any, weighs against a large bond, and (c) any temporary relief will
be required for only a relatively limited time period, viz., until March 13,
1997.
Respondents reiterated their position that complainant has not made a
strong showing of likelihood of success. They also argued that Quickturn, with
over $80 million in sales and $40 million in cash reserves, is not indigent and
that Mentor and Meta will be significantly harmed if temporary relief issues.
Hence, they argued that a "substantial" complainant's bond is appropriate.
The IA argued that the purpose of requiring a complainant to post a
temporary relief bond is to deter frivolous motions on temporary relief and the
use of such motions to harass respondents. In this case, however, he notes that
the evidence of validity and infringement is strong. Accordingly, the IA argued
for a relatively small complainant's bond in an amount equal to the projected
net profits that Mentor and Meta could be expected to enjoy from the sales of
emulators that they expect to make in the United States during the remaining
period of the investigation, which he estimated to be roughly $200,000.
<PAGE>
We note that, in adopting the ALJ's ID on temporary relief, we have
found that complainant has made a strong showing of likelihood of success on the
merits of this investigation. We also adopted the ALJ's finding that complainant
has demonstrated that it is threatened with irreparable harm in the event
temporary relief does not issue. Nevertheless, there exists the possibility that
our construction of the claims of the patents in issue and/or our infringement
determination in this investigation may ultimately change.20 Since the purpose
of the bond requirement is to protect the enjoined party from costs and damages
resulting from a wrongful injunction while fixing the movant's liability for
such an order,21 we believe a relatively small bond should be required of
complainant. In this regard, we agree with the IA and have set complainant's
bond at $200,000, a level equal to the projected act profits that Mentor and
Meta could be expected to enjoy for the sales of emulators that they expect to
make during the remaining period of the investigation.
V. RESPONDENTS' BOND 22
As noted above, pursuant to section 337(e)(1), articles subject to a
temporary exclusion order are entitled to entry into the United States under a
bond paid by respondents in an amount determined by the Commission.23
Specifically, section 337(e)(1) also provides that during the pendency of the
investigation, the excluded articles "shall be entitled to entry under bond
- --------------------------
20 New England Braiding Co. Inc. v. A.W. Chesterton Co., 23 U.S.P.Q.2d 1622,
1626 (Fed. Cir. 1992). See ID at 75, note 40.
21 See Continuum Co. Inc v. Incepts. Inc., 873 F.2d 801, 803 (5th Cir. 1989).
22 Commissioner Crawford does not join the Commission's opinion respecting
respondents' bond. Instead, she would have accepted the ALJ's recommendation
on this issue.
23 19 U.S.C. ss.1337(e)(1).
<PAGE>
prescribed by the Secretary [of the Treasury] in an amount determined by the
Commission to be sufficient to protect the complainant from any injury."24
The ALJ found that there is an indication that respondents will be
active in the U.S. emulation market during the period for which temporary relief
would be in effect. He also found that when there was no competing product,
Quickturn would provide a discount from its list price of approximately 10 to 20
percent on average, but that the discount rose to 40 percent when Quickturn
competed with the Meta device. He therefore concluded that, based on the
difference between these two discount levels, respondents should be subject to a
bond of 25 percent of the entered value of each Meta emulator imported during
the temporary relief period.
Complainant argued that respondents bond should be set at a minimum of
100 percent of the sales price of any emulation products imported or sold, or
services provided, by respondents during the pendency of the temporary relief.
According to complainant,the Commission should use complainant's gross profit as
the appropriate measure to offset any injury during the temporary relief period.
Gross profit is appropriate, they argue, because it takes account of the fact
that, if Quickturn does not make a sale, it does not incur the variable costs of
production, but does incur fixed costs like overhead, sales and administrative
expenses. In addition, to account for this lost sales revenue, Quickturn argues
that some amount should be added to the bond to account for price erosion and
the other aspects of the irreparable harm to Quickturn that would result from
respondents' sales of infringing devices.
- ------------------------------
24 Id. This bonding standard for temporary relief investigations is new and
became part of section 337 through the URAA amendments to the statute.
Previously, the Commission set a respondent's bond by taking into account,
among other things, the amount that would offset any competitive advantage
to the respondent resulting from the respondent's alleged unfair
<PAGE>
The IA argued that complainant has not provided sufficient
justification for the proposed 100 percent bond. Instead, the IA noted that,
although the evidence does not lend itself to a ready quantification of the
amount of bond that would compensate complainant for the harm to it, there is at
least evidence as to an amount that would tend to counteract any price erosion
caused by respondents. Accordingly, the IA proposed that the bond should be set
in an amount equal to the difference between the discounts Quickturn typically
offers in the absence of emulation competition (10 percent) and the discounts
Quickturn offers when faced with competition from Mentor and Meta (40 percent).
Thus, the IA argued that respondents should be subjected to a bond of 30 percent
of the entered value of each Meta emulator imported during the temporary relief
period.
We disagree with the ALJ's recommendation that 25 percent is an
appropriate bond rate for respondents. The ALJ based this recommendation
essentially on the extent of price erosion that respondents caused Quickturn to
endure in the U.S. market.25 The method used by the ALJ (and supported by the
IA) - setting the bond amount based on evidence of price suppression - is the
approach traditionally taken by the Commission in setting bond for the
Presidential review period in permanent section 337 investigations. We do not
believe, however, that, in the context of the temporary relief phase of this
investigation, this approach satisfies the new statutory requirement that the
amount of the bond be "sufficient to protect the complainant from any
- ------------------------------
method of competition or unfair acts in the importation or sale of the
articles in question. See 19 C.F.R. ss.210.50(a)(3).
25 This figure is supported by evidence presented at trial. In the one case of
head-to-head competition in the U.S. between Quickturn and Mentor, Mentor's
final quote was $633,000, compared to Quickturn's final quote of $490,000.
Quickturn's initial quote on this sale was its list price of $650,000.
Consequently, for this sale Quickturn, discounted about 25 percent off its
list price.
<PAGE>
injury."26 As the ALJ found, Quickturn's potential harm from the sale of
respondents' accused devices goes well beyond this price erosion. We believe
that this new statutory requirement directs that respondents' bond should more
closely approximate this potential harm to Quickturn.
Although such an analysis is, by its very nature, difficulty to
quantify, it is reasonable to conclude that the potential harm to Quickturn is
greater than the extent of the price erosion alone. As complainant points out,
it loses all the revenues it would have garnered from each sale, not just the
amount represented by the price erosion. The principal harm to Quickturn from
that lost revenue is the long-term impact on Quickturn's research and
development efforts. As noted above, Quickturn is a relatively small, single
product company competing in the rapidly evolving hardware logic emulation
market. As such, even a single lost sale to an accused device could have a
significant and long-term negative impact on Quickturn's ability to compete.
In these circumstances, while any bond amount cannot capture precisely
the full extent of any such long-term impact on Quickturn from sales of the
accused devices, there is evidence that Quickturn allocates approximately 18
percentage of gross revenues to research and development. Accordingly, we have
set respondents' bond at 43 percent of the entered value of the Meta devices,
reflecting 25 percent for the price erosion that the sale of an infringing Meta
device causes and an additional 18 percent to compensate Quickturn for the
impact of such sales on its research and development budget.
- ---------------------------------
26 See, e.g., Certain Nonwoven Gas Filter Elements, 11 ITRD 1391, 1399 (1988).
<PAGE>
EXHIBIT D
CONTAINS CONFIDENTIAL BUSINESS INFORMATION
UNITED STATES INTERNATIONAL TRADE COMMISSION
Washington, D.C.
In the Matter of
CERTAIN HARDWARE LOGIC EMULATION SYSTEMS AND Investigation No. 337-TA-383
COMPONENTS THEREOF
Final Initial and Recommended Determinations
Pursuant to the Notice of Investigation (61 Fed. Reg. 9486)
(March 8, 1996), this is the administrative law judge's final initial
determination, under Commission rule 210.42. The administrative law judge, after
a review of the record developed, finds that a violation of section 337 of the
Tariff Act of 1930, as amended (19 U.S.C.Section 1337) by respondents Mentor
Graphics Corporation, Inc. (Mentor) and Meta Systems (Meta) has occurred.
This is also the administrative law judge's recommended
determination on remedy and bonding, pursuant to Commission rule
210.42(a)(1)(ii). The administrative law judge recommends that the Commission
issue a limited exclusion order and a cease and desist order directed to
respondents Mentor and Meta, and further recommends a bond of 180% during
Presidential review.
<PAGE>
law judge finds that complainant has established the technical prong of the
domestic industry requirement.
VII. Bonding Recommendation
During the period of Presidential review of a Commission
determination on permanent relief, respondents are entitled to import the
articles subject to the exclusion order or cease and desist order under a bond
"sufficient to protect the complainant from any injury." 19 U.S.C.Section
1337(j)(3); 19 C.F.R.Section 210.50. Complainant argued that the bond during
Presidential review should be set a minimum of 106% of the entered value of any
emulation products imported or involved in action prohibited by the PCDO by
respondents, and to "more adequately" protect complainant from harm, should be
set at 353% of entered value (CBr at 138-139). Respondents argued that the facts
warrant a bond no greater than 10% (RRBr. at 24). The staff argued that the bond
should be 43% of the sales price of the imported product, which would be
equivalent to a bond of about 180% of the entered value to account for the
disparity between entered value and sales price (SRBr. at 18).
The Commission has previously determined in this investigation
that price erosion alone is not sufficient to protect Complainant from harm
under the circumstances of this case. See Comm'n Op. on Remedy, The Public
Interest, And Bonding at 19-21 (August 12, 1996). The administrative law judge
therefore finds that respondents' proposed bond of 10% would be inadequate to
"protect the complainant from any injury" as required by section 337(j)(3) and
Commission rule 210.50.
The staff argued that the Commission's methodology for
calculating the temporary relief bond, which was also geared to protecting
Complainant from harm, is legally and factually sound, except that it did not
take into account the difference between entered value and actual prices. The
TEO bond imposed by the Commission reflected 25 percent for price erosion caused
by the sale of infringing Meta emulation systems and 18 percent for the impact
of infringing sales on revenues available for Quickturn to invest in research
and development. See Comm'm Op. on Remedy and Bonding at 21. The administrative
law judge finds that this method of calculating the appropriate bond for the
Presidential review period is appropriate. He
2
<PAGE>
further finds that it is also necessary to factor in the difference between
entered value and sales prices, because the entered value of the accused Meta
systems and components thereof is much less than the actual sales price. See
SX-21. For example, the entered value of the National Semiconductor emulation
system imported under the TEO bond was $169,734.00, compared to a sales price
from Mentor to National Semiconductor of $498,648.00, resulting in entered value
being 34% of sales price. (FF 516). The sales price of the Design M Card (part
no. 061203) in the National Semiconductor system was $17,908.00, while the
equivalent entered value was reported as $3,873.00, resulting in entered value
being 22% of the sales price. (FF 518). The sales price of the Logic Card HW
(part no. 061202) in the National Semiconductor system was $9,945.00, while the
equivalent entered value was reported as $2,365.00, resulting in entered value
being 24% of the sales price. (FF 520). Thus, the evidence of record shows that
respondents are reporting entered values of Meta systems and components thereof
imported under the TEO at less than the sales price of the imported products (FF
516-520). Moreover, respondents have publicly represented that the 43% bond now
in place has no effect on their ability to make products available in the U.S.
market (FF 522). In addition, the record shows that complainant has sustained
actual harm during the pendency of this investigation due to lost sales to
respondents, in spite of the current 43% TEO bond (FF 523-527).
Based on the present record, the administrative law judge
recommends that a bond in the amount of 180% of entered value should be imposed
during Presidential review.
VIII. Remedy Recommendation
Complainant argued that the administrative law judge should
recommend a permanent exclusion order (PEO) and a permanent cease and desist
order (PCDO), as set forth in the attachments to complainant's post hearing
brief (CBr at Exhibit 1 and Exhibit 2).38 Complainant argued that the language
of any PEO and PCDO should broadly provide for exclusion of infringing systems;
and that they should not be limited to only those upon which the finding of
violation was made, but should include existing and future infringing systems
upon which no specific finding has been made, including redesigned systems (CBr
at 109). The staff
- -------------------------------
38 Complainant has not requested a general exclusion order (CBr at 112).
3
<PAGE>
argued that a permanent limited exclusion order should be entered against
respondents that would cover respondents' emulation systems that infringe the
patents in issue and components thereof; and that a cease and desist order
should be entered against respondents directed to Mentor's importation and sales
activities involving the imported goods (SBr at 102). Respondents argued that
while they would not challenge an exclusion order limited to "Meta logic boards,
Meta-128 chips or Meta MDC chips," the remedies recommended by complainant and
the staff are beyond the Commission's statutory authority (RRBr. at 1).
Intervenor Bull argued that any grant of permanent relief sought by complainant
PEOTr. 1144). Benchmark Electronics has been given engineering documents that
have come from France with regard to the SimExpress system. (Dalio PEOTr.
1155-56). Benchmark has been provided by Mentor, by paper copies and electronic
means, mechanical drawings, PCB design information, component lists, description
of the plastic skin that goes on the outside of the box, and paint chips for the
column, to assist it in U.S. manufacturing. (Dalio Depo. (3/4/97), CX-480 at
60-62). Some of the information that was provided to Benchmark Electronics from
France includes printed circuit board design information in electronic file
format, FTP'd from the engineering computer systems in France and now stored on
disks in various locations, depending on who needs it, for Benchmark to produce
printed circuit board layouts. (Dalio PEOTr. 1158). Engineering information that
has been imported into the United States to enable U.S. operations on the Meta 1
include specifications, drawings, geometrical data for board layouts, and net
lists. (Carpenter Depo. (2/4/97), CX-479, at 32). Receipt of technical materials
from France has facilitated the production of the SimExpress emulation system in
the United States. (Dalio PEOTr. 1144).
516. The price of the two-rack SimExpress system, manufactured
in France and sold to National Semiconductor was approximately $500,000.00.
(Carpenter PEO Tr. 996-997; Folsom PEO Tr. 1555-56). The sales price of Mentor
Graphics to National Semiconductor for the 2 base (rack) emulation system sold
to National Semiconductor in 1997 was US $498,648.00. (SX21, Invoice No. 273383
dated February 25, 1997, with Shipment ID Number 1134155). The U.S. Customs
entered value of the 2 base (rack) system sold by Mentor to National
Semiconductor in 1997 was 975,763.80 French francs, which at the applied
exchange rate of one
4
<PAGE>
French franc equal to US $0.174307, equaled a total entered value (TEV) of US
$169,734.00. (SX21, Entry No. 1205902-6, and Meta Systems Invoice dated February
17, 1997, between Meta Systems and Mentor Graphics, with customer designation
200860 and Purchase Order Number 67584 NATIONAL SEMIC).
517. A component of the SimExpress (Meta) emulation system -
the I/O Card HW with part number 061205 - was sold on August 7, 1996 to UB
Networks by Mentor for US $11,095.00 per unit, and on August 2, 1996, the same
type of part with part number 061205 was sold by Mentor Graphics (Netherlands)
B.V. to Mentor Graphics with a declared entered customs value of US $3,979.94
per unit. (SX21, Document bearing Shipment I.D. Number 1130121, and Entry No.
1500344-3 and Mentor Graphics(Netherlands ) B.V. invoice dated August 2, 1996,
bearing customer order number DS59210).
518. A component of the SimExpress (Meta) emulation system -
Design Memory Card with part number 061203 - was sold on October 30, 1996 to UB
Networks by Mentor for US $17,900.00 per unit. On August 2, 1996, the same type
of part with part number 061203 was sold by Mentor Graphics (Netherlands) B.V.
to Mentor Graphics with a declared entered customs value of US $6,415.61 per
unit; and on February 17, 1997, was sold by Meta Systems to Mentor Graphics as
part of the National Semiconductor system for 22,221.00 French francs, with an
equivalent declared entry value of US $3,873.28 at an exchange rate of one
French franc equals US $0.174307. (SX21, Document bearing Shipment I.D. Number
1131972, and Entry No. 150344-3 and Mentor Graphics (Netherlands) B.V. invoice
dated August 2, 1996, bearing customer order number DS59210; and Document
bearing Shipment I.D. Number 1134155, and Entry No. 1205902-6 and Meta System
Invoice dated February 17, 1997, with Purchase Order Number 67584 NATIONAL
SEMIC).
519. A component of the SimExpress (Meta) emulation system -
the I/O POD Unit with part number 061206 - was sold on August 7, 1996 to UB
Networks by Mentor for US $608.00 per unit, and on August 2, 1996, the same type
of part with part number 061206 was sold by Mentor Graphics (Netherlands) B.V.
to Mentor Graphics with a declared entered customs value of US $218.46 per unit.
(SX21, Document bearing Shipment I.D. Number 1130121, and
5
<PAGE>
Entry No. 1500344-3 and Mentor Graphics (Netherlands) B.V. invoice dated August
2, 1996, bearing customer order number DS59210).
520. A component of the SimExpress (Meta) emulation system -
the Logic Card HW with part number 061202 - was sold on February 25, 1997, as
part of an emulation system, to National Semiconductor by Mentor Graphic for US
$9,945.00, and the same part was sold on February 17, 1997, by Meta systems to
Mentor Graphics for 13,566.13 French francs, with an equivalent declared value
as part of the system of $2,365.00 at an exchange rate of one French franc
equals US $0.174307. (SX 21, Document bearing Shipment I.D Number 1134155, and
Entry No. 1205902-6 and Meta System Invoice dated February 17, 1997, with
Purchase Order Number 67584 NATIONAL SEMIC).
521. The U.S. list prices of Mentor in September 1996 for: A
SimExpress POD unit (part no. 061206) was $870.00; a Design Memory Card 64M
(part no. 061203) was $25,550.00; and an I/O card (part no. 061205) was
$15,850.00).
522. Mentor Graphics Corporation, in a press release dated
August 7, 1996 asserted "This week, the ITC affirmed that Mentor Graphics will
have to post a 43 percent bond with U.S. Customs for each SimExpress unit
imported into the country . . . . The bond will not have any impact on product
availability in the United States and will not impact current product pricing
globally." (CX-443).
523. Quickturn product sales expectations fell short of their
goals in the first quarter of 1997 primarily because customers at the end of the
quarter had prolonged their decisions to buy emulation based on the evaluations
of the Mentor/Meta product line. (Jordan, Tr. 684). The customers that delayed
their purchase decisions due to Mentor/Meta included VLSI Logic in Santa Clara
and in Phoenix, Motorola in Phoenix and Austin, Texas, Lucent Technologies in
Chicago and New Jersey, and Texas Instruments in Dallas and Houston. (Jordan,
Tr. 684-87). Quickturn's anticipated revenue for Q-1 1997 from VLSI, Motorola,
Lucent Technology and Texas Instruments was in excess of $4 million. (Jordan,
Tr. 687).
524. Quickturn reported a loss per share of between 10 and 13
cents per share on April 1, 1997. (CX-533). On April 1, 1997, Quickturn's stock
opened at 18 and a half and
6
<PAGE>
the price dropped 50 percent to 8 7/8 or 8 3/4. (Jordan, Tr. 707).
525. Quickturn forecasted that VLSI's initial sale would be
over one million dollars, and that VLSI would produce several million dollars in
revenue for the provider of emulation systems. (Jordan, Tr.
688, 707).
526. Quickturn believes that Motorola, Lucent Technologies and
Texas Instruments could easily spend 4 to 5 million dollars a year in emulation
technology. (Jordan, Tr. 708).
527. If Quickturn loses the Motorola and Texas Instruments
emulation revenues, it could severely impact the company's ability to continue R
& D funding and servicing of existing customers. (Jordan, Tr. 708).
528. Mentor Graphics has indemnified U.S. purchasers or
potential purchasers of Meta (SimExpress) emulation systems. (Folsom PEO Tr.
1530; CX-436). Thus, Mentor's standard policy with all of its customers is to
indemnify them for patent infringement risks; it did this with National
Semiconductor. (Carpenter Depo. (2/4/97), CX-479, at 34, 92-93). CX-413 is a
Mentor Graphics indemnification to UB Networks for patent infringement which
explicitly states that ". . . Mentor Graphics assumes the risk of patent
infringement."
529. Mentor has agreed to indemnify Bull H.N. for its use of a
SimExpress system, including any direct, indirect or consequential damages
resulting from this ITC investigation. (Carpenter PEO Tr.
1033-1034; Giordano Depo. (8/20/96), CX-481 at 73).
530. There are Meta machines that are in inventory in the
United States that are available for sale to customers. (Reblewski, PEO Tr.
2883-84). Mr. Reblewski estimating that maybe 15 imported Meta machines are
currently in inventory in the United States. (Reblewski, PEO Tr. 2894-2896).
531. Butts earliest conceptions relating to the reprogrammable
interconnect architecture disclosed in the specification maturing as the `496
and `473 patents occurred between August and October 1987, and were recorded in
a paper that he wrote for Mentor entitled Reconfigurable Hardware for Logic
Simulation: Description of Concept dated October 5, 1987. (Butts, CX-210,
Attachment N at QM54323, QM54337).
7
<PAGE>
532. Butts' October 5, 1987 paper described a network of
reconfigurable logic chips interconnected by their I/O pins. Butts stated under
other in his affidavit to the Patent Office that he "specifically had in mind
using the reprogrammable electrical conductors in at least some of the
reconfigurable logic array chips to provide programmable routing resources for
interconnecting other reconfigurable logic array chips." (Butts, CX-210,
Attachment N at QM54324 QM54337).
8
<PAGE>
EXHIBIT E
CONTAINS CONFIDENTIAL BUSINESS INFORMATION
SUBJECT TO PROTECTIVE ORDER
UNITED STATES INTERNATIONAL TRADE COMMISSION
Washington, D.C.
In the Matter of
HARDWARE LOGIC EMULATION SYSTEMS AND COMPONENTS Investigation No. 337-TA-383
THEREOF (Sanctions Proceeding and Bond
Forfeiture/Return Proceeding)
JOINT MOTION OF COMPLAINANT AND RESPONDENTS
FOR DETERMINATIONS CONCERNING (1) THE PRECISE
DOLLAR AMOUNT OF SANCTIONS TO BE AWARDED PURSUANT
TO THOSE PORTIONS OF ORDER NO. 96 ADOPTED BY THE COMMISSION,
AND (2) THE PRECISE DOLLAR AMOUNT OF RESPONDENTS'
TEMPORARY RELIEF BOND WHICH IS TO BE FORFEITED TO COMPLAINANT
COMPLAINANT RESPONDENTS
- ------------ -----------
Quickturn Design Systems, Inc. Mentor Graphics Corp.
55 W. Trimble Road 8005 S.W. Boeckman Road
San Jose, California 94043 Wilsonville, Oregon 97070
(415) 967-3300
Meta Systems
4 Rue Rene Razel
91400 Saclay, France
INTERVENOR
Bull HN Information Systems, Inc.
300 Concord Road
Billerica, Massachusetts
<PAGE>
Complainant Quickturn Design Systems, Inc. and Respondents
Mentor Graphics Corporation and Meta Systems hereby jointly move the
Administrative Law Judge for issuance of initial determinations concerning the
precise dollar amounts of two matters which the Commission has referred to the
Administrative Law Judge. Complainant and Respondents base this motion on the
Stipulation Agreement Regarding Liquidated Damages, executed by the parties and
made effective as of July 9, 1998, which is attached hereto as Exhibit A.
On March 6, 1998, the Commission issued its order regarding
Order No. 96 in which the Commission remanded this Investigation to the
Administrative Law Judge for appropriate proceedings and for the issuance of an
initial determination on the precise dollar amount of sanctions to be awarded
pursuant to those portions of Order No. 96 adopted by the Commission, and to
specifically identify those counsel liable for payment of the sanctions to be
awarded.
On April 28, 1998, the Commission referred to the
Administrative Law Judge Complainant's motion, filed on February 26, 1998, for
forfeiture of Respondents' bond posted during the temporary relief and
presidential review periods of this Investigation, and Respondents' motion,
filed on March 13, 1998, for return of those bonds.
With respect to the above-mentioned matters, both Complainant
and Respondents wish to conserve resources by stipulating to the precise dollar
amounts which the ALJ has been ordered to determine. Accordingly, Complainant
and Respondents have executed a Stipulation Agreement Regarding Liquidated
Damages, made effective July 9, 1998, in which they stipulate that (1) the
precise dollar amount of sanctions to be awarded pursuant to those portions of
Order No. 96 adopted by the Commission shall for all purposes be found equal to
$425,000.00 and (2) Quickturn's entitlement to forfeiture of Respondents'
temporary relief bonds shall for all purposes be found equal to $425,000.00.1
See Exhibit A.
In view of the stipulated agreement between Quickturn and
Mentor regarding the two matters which have been referred to the Administrative
Law Judge, Complainant and
- ----------------------------
1 Respondents have represented through counsel that no imports or other
actions subject to bonding under the Commission's permanent relief orders
have occurred, and thus no forfeiture amount is provided for any permanent
relief bonds.
2
<PAGE>
Respondents respectfully request the Administrative Law Judge to issue initial
determinations that (1) the precise dollar amount of sanctions to be awarded
pursuant to those portions of Order No. 96 adopted by the Commission shall for
all purposes be found equal to $425,000.000, and (2) Complainant's entitlement
to forfeiture of Respondents' temporary relief bonds shall for all purposes be
found equal to $425,000.00
Respectfully submitted.
F. David Foster
Sturgis M. Sobin
ABLONDI, FOSTER, SOBIN
& DAVIDOW, P.C.
1150 Eighteenth Street, N.W., Ninth Floor
Washington, D.C. 20036
(202) 296-3355
Dated July 10, 1998 By: /s/ David Foster
--------------------------- ---------------------
F. David Foster
Attorneys for Complainant
QUICKTURN DESIGN SYSTEMS, INC.
Gary M. Hnath
VENABLE, BAETJER, HOWARD
& CIVILETTI, LLP
1201 New York Avenue, N.W., Suite 1000
Washington, D.C. 20005-3917
(202) 962-4800
Dated July 10, 1998 By: /s/ Gary Hnath
---------------------------- -------------------
Gary M. Hnath
Attorneys for Respondent
MENTOR GRAPHICS CORPORATION
and META SYSTEMS
3
<PAGE>
EXHIBIT A
<PAGE>
CONFIDENTIAL BUSINESS INFORMATION
SUBJECT TO PROTECTIVE ORDER
STIPULATION AGREEMENT REGARDING LIQUIDATED DAMAGES
Whereas Complainant Quickturn Design Systems, Inc.
("Quickturn") on the one hand and Respondents Mentor Graphics Corporation and
Meta Systems, Inc. (collectively "Mentor") on the other hand wish to conserve
resources by stipulating certain monetary matters at issue in the International
Trade Commission proceedings entitled Certain Hardware Logics Emulation Systems
And Components Thereof, Inv. No. 337-TA-383.
1. Quickturn and Mentor hereby stipulate that the precise dollar amount
of sanctions to be awarded pursuant to those portions of Order No. 96 adopted by
the Commission shall for all purposes be found equal to $425,000.00.
2. Quickturn and Mentor hereby stipulate that Quickturn's entitlement
to forfeiture of Respondents' temporary relief bonds shall for all purposes be
found equal to $425,000.00.
3. In order to implement the foregoing stipulations, Quickturn and its
officers, directors, employees, agents, parents, subsidiaries, affiliates,
predecessors, successors, assigns and its former and present counsel in this
investigation, and Mentor and its officers, directors, employees, agents,
parents, subsidiaries, affiliates, predecessors, successors, assigns and its
former and present counsel in this investigation, hereby agree:
a. Within 3 days of execution of this Stipulation Agreement,
Quickturn and Mentor will submit to the Administrative Law Judge a joint motion
for recommended determinations that (i) the precise dollar amount of the
sanctions to be awarded pursuant to those portions of Order No. 96 adopted by
the Commission is $425,000.00, and that (ii) Quickturn is entitled to forfeiture
of Respondents' temporary relief bond in the amount of $425,000.00.
b. Within 10 days of entry of a final Commission determination
adopting the stipulated value of the monetary sanctions and the stipulated value
of the bond forfeiture, Mentor will pay Quickturn the sum of the stipulated
dollar values.
c. Within 10 days of payment of the stipulated dollar values,
Quickturn and Mentor will file with the Commission a joint motion for
termination of the monetary sanctions
<PAGE>
and bond forfeiture proceedings, Quickturn's consent to the release of
Respondents' temporary relief bonds, and a public version of the Stipulation
Agreement. Mentor will withdraw or seek dismissal of its appeal of the
Commission's order to modify the amount of Respondents' temporary relief bond,
Federal Circuit Docket Nos. 98-1088 and 98-1158.
d. Payment of any award of compensatory (as opposed to enhanced)
damages to Quickturn by Mentor in the pending District Court actions with Mentor
shall be reduced by the amount of the stipulated forfeiture value of
Respondents' temporary relief bond that is paid to Quickturn in the present
Investigation, but only up to the actual amount of compensatory damages awarded
to Quickturn.
e. Subject to the appeal of the allowability of sanctions (as
opposed to the amount), Mentor will abandon that portion of any pending appeals,
and will not further appeal, any Commission determination specifying the amount
of monetary sanctions and the forfeiture of Respondents' temporary relief bonds.
f. Quickturn will not argue that this Stipulation and/or Mentor's
election not to appeal any Commission determination regarding the amount of
monetary sanctions or forfeiture of Respondents' temporary relief bond is
relevant to any issue, or has any preclusive effect, in its District Court
actions with Mentor.
g. If Mentor elects to appeal the Commission's determination to
award monetary sanctions against Mentor for discovery abuse, and as a result of
such appeal the Commission's determination to award monetary sanctions is
reversed or vacated, Quickturn will refund to Mentor within 10 days of such
order becoming final and nonappealable the entire $425,000.00 paid by Mentor as
the stipulated monetary sanction.
h. Quickturn and Mentor shall treat the terms of this Stipulation
Agreement as Confidential Business Information, subject to the protective order
entered in the International Trade Commission investigation, until Mentor pays
the stipulated sums to Quickturn. If Quickturn and Mentor are unable to agree
upon the preparation of a public version of the Stipulation Agreement, that
issue shall be resolved by motions for declassification to the Administrative
Law Judge.
2
<PAGE>
i. This Stipulation Agreement and all actions thereon shall be
governed by the laws of California.
j. This Stipulation Agreement is effective as of July 9, 1998.
- --------------------------------- /s/ Dean Freed
Raymond K. Ostby, Vice President ----------------------------------
and Chief Financial Officer Dean Freed, Vice President and
Quickturn Design Systems, Inc. General Counsel
July __, 1998 Mentor Graphics Corporation
July 8, 1998
/s/ Bernd Braune
----------------------------------
Bernd U. Braune, Director
Meta Systems, Inc.
July __, 1998
3
<PAGE>
EXHIBIT F
CONFIDENTIAL BUSINESS INFORMATION
SUBJECT TO PROTECTIVE ORDER
UNITED STATES INTERNATIONAL TRADE COMMISSION
Washington, D.C.
Before Administrative Law Judge
Paul J. Luckern
In the Matter of
CERTAIN HARDWARE LOGIC EMULATION SYSTEMS AND Inv. No. 337-TA-383
COMPONENTS THEREOF (Ancillary Proceedings)
COMMISSION INVESTIGATIVE STAFF'S RESPONSE TO
JOINT MOTION FOR DETERMINATIONS OF (1) THE PRECISE
DOLLAR AMOUNT OF SANCTIONS TO BE AWARDED PURSUANT
TO THOSE PORTIONS OF ORDER No. 96 ADOPTED BY THE COMMISSION,
AND (2) THE AMOUNT OF RESPONDENTS' TEMPORARY RELIEF
BOND WHICH IS TO BE FORFEITED TO COMPLAINANT
On July 10, 1998, Complainant Quickturn Design Systems, Inc.
and Respondents Mentor Graphics Corp. and Meta Systems filed a joint motion for
a determination of the dollar value of the sanctions awarded Quickturn by the
Commission, and the dollar value of Respondents' temporary relief bond that
should be forfeited to Complainant. Motion Docket No. 383-145 ("Joint Motion").
The Joint Motion is based upon an attached Stipulation Agreement Regarding
Liquidated Damages between Quickturn, Mentor, and Meta that is intended to
conclude the Commission proceedings in this investigation.1 The movants have
stipulated that the amount the Respondents will pay Complainant for the
sanctions is $425,000 and the amount of bond that Respondents will forfeiture to
Complainant will also be $425,000. Because the Joint Motion and Stipulation
Agreement will achieve the principal objectives of the
- -----------------------
1 The Stipulation Agreement at Sec. 3(e) provides that no appeal will be
lodged against a Commission determination adopting the stipulated sanctions
and bond forfeiture dollar values. However, the Stipulation Agreement does
not prohibit an appeal of the underlying award of monetary sanctions. Id.
<PAGE>
sanctions and bond forfeiture proceedings, and will conserve litigant and
Commission resources, the Staff supports entry of a recommended determination
adopting the stipulated sanction and bond forfeiture dollar values.
I. STATUS OF THE INVESTIGATION AND ANCILLARY PROCEEDINGS
The underlying investigation was instituted on March 8, 1996,
based upon a complainant and motion for temporary relief filed on January 26,
1996 by Quickturn. 61 Fed. Reg. 9486. The products at issue are hardware logic
emulation systems that are used in the semiconductor manufacturing industry to
design and test the electronic circuits of semiconductor devices.
On July 8, 1996, the Administrative Law Judge issued an
initial determination granting the motion for temporary relief. Order No. 34. On
August 5, 1996, the Commission determined not to modify or vacate the ID, issued
a temporary limited exclusion order against respondents and a temporary cease
and desist order against Mentor, and determined that Respondents' temporary
relief bond should be 43 percent of the entered value of imported hardware logic
emulation systems and components thereof.2
On July 31, 1997, the Judge issued a final ID finding
Respondents in violation of Section 337 by infringement of all five of
Quickturn's asserted patents. On October 2, 1997, the Commission determined not
to review the Judge final ID. On December 3, 1997, the Commission issued a
permanent limited exclusion order against Respondents' imported hardware logic
emulation systems, and a cease and desist order directed to Respondent Mentor.
On July 31, 1997, the Judge also issued Order No. 96 finding
that Respondents had engaged in discovery abuses and abuse of process justifying
the imposition of adverse inferences of fact and monetary sanctions. On March 6,
1998, the Commission denied
- -----------------------------
2 On September 24, 1997, the Commission granted Complainant's motion to
modify Respondents' temporary relief bond by retaining the 43 percent bond
when the entered value of the imported articles was appraised at
transaction value, but increased the bond to 180 percent of the entered
value when the articles are appraised at other than transaction value.
Certain Hardware Logic Emulation Systems. Modification of Temporary Relief
Exclusion Order, U.S.I.T.C. Pub. No. 3074 (Nov. 1997).
2
<PAGE>
Respondents' appeals of Order No. 96, except as to two identified motions, and
remanded to the Judge the issue of the precise dollar value of sanctions to be
awarded Complainant.
On April 28, 1998, the Commission also referred to the
Administrative Law Judge Complainant's February 21, 1998 motion for forfeiture
of Respondents' bonds, and Respondents' March 13, 1998 cross motion for return
of their bonds.
II. DOLLAR VALUE OF AWARDED SANCTIONS
Upon adopting certain portions of Order No. 96 awarding to
Complainant unspecified monetary sanctions for Respondents' discovery abuses,
the Commission remanded the sanctions proceedings to the Administrative Law
Judge and directed that he issue an initial determination within six months in
accordance with the following instructions:
6. The initial determination, which is to be consistent with
order No. 96, shall rule on the precise dollar amount of
sanctions to be awarded pursuant to those portions of Order
No. 96 adopted by the Commission and shall specifically
identify those counsel liable for payment of the sanctions to
be awarded.
Notice of Commission Decision Regarding Appeals of ALJ Order No. 96, Order at 2
(March 6, 1998). Thus, the initial determination should determine the dollar
value of the awarded monetary sanctions, as well as who is liable for the
payment of those sanctions.
A primary objective of monetary sanctions for abuse of
Commission discovery process is to deter future abuses. Thus, in this
investigation, an important goal in setting the amount of sanctions is that the
dollar value of the sanctions should off-set any advantage Respondents may have
gained from the sanctioned discovery abuses. Another goal is to compensate
Complainant for the costs it incurred in overcoming those abuses. The stipulated
sanctions amount of $425,000 is a substantial sum that Complainant apparently
believes is sufficient, in combination with the non-monetary sanctions, to
off-set any financial or tactical advantages that Respondents might have gained
from their discovery abuses, and that is sufficient to compensate Complainant
for its costs and fees incurred as a result of the sanctionable conduct.3 In
addition, the fact that the dollar value of the sanctions was resolved by
- ------------------------------
3 The Staff notes that the stipulated monetary sanction of $425,000 is
reasonably close to the $482,502 of costs and fees sought by Complainant.
Memorandum In Support of Complainant's Detailed Declarations Concerning the
Precise Amount of Monetary Sanctions
3
<PAGE>
agreement between Complainant and Respondents indicates that the amount is
appropriate, taking into consideration the parties' substantial incentive to
avoid the expense of further proceedings.
The Commission also indicated that the Judge's initial
determination should decide which, if any, attorneys should be liable for the
payment of the sanctions to be awarded. Under the parties' stipulation, however,
none of Respondent counsel are held liable for the payment of sanctions,
inasmuch as Respondents Mentor Graphics and Meta Systems have assumed liability
for payment of the stipulated sanctions value of $425,000.
Stipulation Agreement at P. 3(b).4
Because the public interest favors expeditious proceedings and
the conservation of resources that might otherwise be consumed in protracted
sanctions proceedings,5 and because the objectives of the Commission's monetary
sanctions awards appear to be served by the stipulated dollar values, the Staff
supports the Joint Motion with respect to the monetary sanctions issues.
III. DOLLAR VALUE OF RESPONDENTS' BOND FORFEITURE
The Judge has been directed to issue, within nine months, an
initial determination concerning Complainant's motion for forfeiture of
Respondents' bonds and Respondents' cross
- -----------------------------
To be Awarded Against Respondents and Certain Ones of Their Counsel at
Attachment 1 (April 2, 1998).
4 Respondent's assumption of the liability for payment of the sanctions award
will also save the Commission considerable resources in investigating and
resolving the difficult issues of identifying specific individuals would be
held liable for payment if the matter was contested and the foreseeable
time and expense of actually assuring payment. Accordingly, it appears that
the Commission's interest in assuring payment of its sanctions award will
be met by a determination that Mentor Graphics and Meta Systems have
assumed that liability. Respondents' trial counsel, Brobeck Phleger &
Harrison, LLP and all counsel from that firm who submitted a notice of
appearance in the investigation were also made parties to the remanded
sanctions proceedings. Remand Order at P. 9(d). While the Brobeck attorneys
are not parties to the Joint Motion or to the Stipulated Agreement
regarding Liquidated Damages, it does not appear they any further
determinations with respect to those attorneys are necessary to disposition
of this matter because the Commission will have no need to seek payment of
the stipulated sanctions amount from those attorneys.
5 Because Respondents payment of the stipulated sanctions to Complainant is a
condition precedent to their submission of a joint motion to terminate the
sanctions proceedings, the Commission is assured that no further
proceedings will be necessary to compel actual payment of the awarded
sanctions.
4
<PAGE>
motion for return of their bonds.6 The initial determination should decide
whether Respondents' bonds should be forfeited, in whole or part, to Complaint
or returned to Respondent.
The Joint Motion seeks a determination that Complainant is
entitled to forfeiture of Respondents' bond in the amount of $425,000, and that
all bonds posted in excess of that amount should be returned to Respondent.
Joint Motion at 2; Stipulation Agreement at P. 3(c). The statutory purpose of
requiring such bonds is to protect Complainant from any injury due to
importations and sales of infringing goods during the pendency of the
investigation. 19 U.S.C. ss.1337(e)(1). Complainant's agreement to the
stipulated bond forfeiture amount is a compelling basis to concluding that
Complainant is adequately protected from injury by Respondent's transactions.
The stipulated forfeiture value will avoid a potentially costly and prolonged
proceeding to determine the actual extent of injury Complainant has sustained
from Respondents' importations and sales under bond, and will also obviate
proceedings regarding the proper valuations of those importations and sales.
Moreover, the Stipulation Agreement provides that Respondents shall directly pay
the bond forfeiture amount to Complainant as a condition precedent to
termination of the investigation and to Complainant's consent to return of all
bonds posted by Respondents, thereby avoiding any need to actually conduct a
bond forfeiture. Accordingly, the Staff supports a determination that
Complainant is entitled to forfeiture of Respondents' bond in the amount of
$425,000 (to be paid directly by Respondents to Complainant) and that
Respondents are entitled to return of any bonds posted in excessive of the
amount (or, assuming Respondents' direct payment of $425,000 to Complainant,
return to Respondent of the entirety of its bonds).
- -------------------------------
6 Notice of Referral to Administrative Law Judge of Complainant's Motion for
Forfeiture of Respondents Bonds and Respondents' Motion For Return Of Their
Bonds, attached Order (April 28, 1998). The Joint Motion indicates that
only Respondents' temporary relief bonds are at issue inasmuch as no
importation or other actions subject to bond have taken place since the
entry of the permanent relief orders. Joint Motion at 2-3 and n.1.
5
Page May Contain Confidential Information
<PAGE>
For the reasons stated above, the Staff supports the Joint
Motion for an initial determination adopting the stipulated dollar value of the
sanctions award and the stipulated value of the bond forfeiture.
Respectfully submitted,
/s/Lynn Levine
-------------------------------------------
Lynn I. Levine, Director
T. Spence Chubb, Supervisory Attorney
Thomas L. Jarvis, Investigative Attorney
Christine E. Lehman, Investigative Attorney
Office of Unfair Import Investigations
U.S. International Trade Commission
(202) 205-2568
July 20, 1998
6
Page May Contain Confidential Information
<PAGE>
Certain Hardware Logic Emulation Systems
And Components Thereof. Inv. No. 337-TA-383
Certificate of Service
I hereby certify that copies of the foregoing Commission
Investigative Staff's COMMISSION INVESTIGATIVE STAFF'S RESPONSE TO COMPLAINANT
AND RESPONDENTS' JOINT MOTION FOR DETERMINATIONS OF (1) THE PRECISE DOLLAR
AMOUNT OF SANCTIONS TO BE AWARDED PURSUANT TO THOSE PORTIONS OF ORDER No. 96
ADOPTED BY THE COMMISSION, AND (2) THE AMOUNT OF RESPONDENTS' TEMPORARY RELIEF
BOND WHICH IS TO BE FORFEITED TO COMPLAINANT were served by hand upon Judge Paul
J. Luckern on July 20, 1998 and upon the parties as indicated.
Counsel for Complainant Quickturn Design Systems, Inc.
By Federal Express By Hand
- ------------------ -------
James C. Brooks, Esq. F. David Foster, Esq.
Lyon & Lyon Ablondi, Foster, Sobin & Davidow, P.C.
633 West Fifth Street, Suite 4700 1150 Eighteenth Street, NW, Ninth Floor
Los Angeles, CA 90071 Washington, D.C. 20036
(213) 489-1600 (202 296-3355
By Federal Express
James W. Geriak, Esq.
Lyon & Lyon
3200 Park Center Drive, Suite 1200
Costa Mesa, CA 92626
Counsel for Respondents Mentor Graphics, Corp. and Meta Systems
By Hand By Federal Express
- ------- ------------------
Gary M. Hnath, Esq. James L. Miller, Esq.
John M. Gurley, Esq. Craig Y. Allison, Esq.
Venable, Baetjer, Howard & Civiletti, LLP Brobeck, Phleger & Harrison
1201 New York Avenue, NW, Suite 1000 Two Embarcadero Place
Washington, D.C. 20005 2200 Geng Road
(202) 962-4800 Palo Alto, CA 94303
(650) 424-0160
By Federal Express
Robert DeBeradine, Esq.
Brobeck, Phleger & Harrison
301 Congress Ave., Suite 1200
Austin, TX 78701
(512) 479-2972
Counsel for Respondents Bull HN Information Systems, Inc.
<PAGE>
By Hand
Thomas Graham, Esq.
Mark C. Del Bianco, Esq.
Skadden, Arps, Slagte, Meagher & Flom
1401 New York Avenue, N.W.
Washington, D.C. 20005
/s/Thomas Jarvis
Thomas L. Jarvis
Office of Unfair Import Investigations
500 E. Street, S.W. Suite 401
Washington, D.C. 20436
(202) 205-2568
2
<PAGE>
EXHIBIT G
CONFIDENTIAL BUSINESS INFORMATION
UNITED STATES INTERNATIONAL TRADE COMMISSION
Washington, D.C.
In the Matter of
CERTAIN HARDWARE LOGIC EMULATION SYSTEMS AND Investigation No. 337-TA-383
COMPONENTS THEREOF (Sanctions Proceeding and
Bond Forfeiture/Return
Proceedings)
Order No. 106: Initial Determination Terminating Sanctions Proceeding and Bond
Forfeiture/Return Proceeding
On July 10, 1998 complainant Quickturn Design System, Inc.
(Quickturn) and respondents Mentor Graphics Corporation and Meta Systems(Mentor)
(movants) jointly moved for issuance of an initial determination concerning the
precise dollar amounts related to each of the sanctions proceeding and of the
bond forfeiture/return proceeding based on a "Stipulation Agreement Regarding
Liquidated Damages" (Stipulation) executed by the movants and made effective as
of July 9, 1998 (Exhibit A. to Motion) (Motion Docket No. 383-145).
Movants represented that on March 6, 1998, the Commission
issued its order regarding Order No. 96 in which the Commission remanded this
investigation to the administrative law judge for appropriate proceedings and
for the issuance of an initial determination on the precise dollar amount of
sanctions to be awarded pursuant to those portions of Order No. 96 adopted by
the Commission, and to identify specifically those counsel liable for payment of
the sanctions to be awarded; and that on April 28,1998, the Commission referred
to the administrative law judge complainant's Motion No. 383-141, filed on
February 26, 1998, for forfeiture of respondents' bond posted during the
temporary relief and presidential review periods of this investigation, and
respondents' Motion No. 383-142 filed on March 13, 1998, for return of those
bonds. Movants argued that they wish to conserve resources by stipulating to the
precise dollar amounts which the administrative law judge has been ordered to
determine and
<PAGE>
accordingly have executed the Stipulation, in which they stipulate that (1) the
precise dollar amount of sanctions to be awarded pursuant to those portions of
Order No. 96 adopted by the Commission shall for all purposes be found equal to
$425,000.00, and (2) Quickturn's entitlement to forfeiture of the temporary
relief bonds shall for all purposes be found equal to $425,000.00.1 Hence
movants requested the initial determination issue to that effect.
The staff, in a response dated July 20, 1998, argued that
because the public interest favors expeditious proceedings and the conservation
of resources that might otherwise be consumed in protracted sanctions
proceedings,2 and because Motion No. 383-145 including its Stipulation, will
achieve the principal objectives of the sanctions and bond forfeiture
proceedings, and will conserve litigant and Commission resources, it supports
entry of a "recommended determination" adopting the stipulated sanction and bond
forfeiture dollar values.3 The staff represented that the underlying
investigation was instituted on March 8, 1996, based upon a complaint and motion
for temporary relief filed on January 26, 1996 by Quickturn (61 Fed. Reg. 9486);
that the products at issue were hardware logic emulation systems that are used
in the semiconductor manufacturing industry to design and test the electronic
circuits of semiconductor devices; that on July 8, 1996, the administrative law
judge issued an initial determination (Order No. 34) granting the motion for
temporary relief; and that on August 5, 1996, the Commission determined not to
modify or vacate Order No. 34, issued a temporary limited exclusion order
against respondents Mentor Graphics Corporation and Meta Systems and a temporary
cease and desist order against Mentor Graphics Corporation and determined that a
- --------------------------------
1 Mentor Graphics Corporation and Meta Systems, in Motion No. 383-145,
represented through counsel that no imports or other actions subject to
bonding under the Commission's permanent relief orders have occurred, and
thus no forfeiture amount is provided for any permanent relief bonds.
(Motion No. 383-145 at 2-3 and n.1).
2 The staff noted that because the payment by the Mentor Graphics Corporation
and Meta Systems of the stipulated sanctions to complainant is a condition
precedent to their submission of any joint motion to terminate the
sanctions proceedings, the Commission is assured that no further
proceedings will be necessary to compel actual payment of the awarded
sanctions.
3 The staff noted that the Stipulation at Sec. 3(e) provides that no appeal
will be lodged against a Commission determination adopting the stipulated
sanctions and bond forfeiture dollar values although the Stipulation does
not prohibit an appeal of the underlying award of monetary sanctions.
2
<PAGE>
temporary relief bond should be 43 percent of the entered value of imported
hardware logic emulation systems and components thereof.4
The staff has also represented that on July 31, 1997, the
administrative law judge issued a final initial determination finding Mentor
Graphics Corporation and Meta Systems in violation of Section 337 by
infringement of all five of Quickturn's asserted patents; that on October 2,
1997, the Commission determined not to review said final initial determination;
that on December 3, 1997, the Commission issued a permanent limited exclusion
order against imported hardware logic emulation systems, and a cease and desist
order directed to respondent Mentor Graphics Corporation; that on July 31, 1997,
the administrative law judge also issued Order No. 96 finding that Mentor
Graphics Corporation and Meta Systems had engaged in discovery abuses and abuse
of process justifying the imposition of adverse inferences of fact and monetary
sanctions; that on March 6, 1998, the Commission denied appeals of Order No. 96,
except as to two identified motions, and remanded to the administrative law
judge the issue of the precise dollar value of sanctions to be awarded to
complainant; and that on April 28, 1998, the Commission also referred to the
administrative law judge complainant's February 21, 1998 motion for forfeiture
of bonds, and a March 13, 1998 cross motion for return of bonds.
It is argued by the staff that a primary objective of monetary
sanctions for abuse of Commission discovery process is to deter future abuses
and thus, in this investigation, an important goal in setting the amount of
sanctions is that the dollar value of the sanctions should off-set any advantage
Mentor Graphics Corporation and Meta Systems may have gained from the sanctioned
discovery abuses; and that another goal is to compensate complainant for the
costs it incurred in overcoming those abuses; that the fact that the dollar
value of the sanctions was resolved by agreement between complainant and Mentor
Graphics Corporation and Meta System indicates that the amount is appropriate,
taking into consideration the parties' substantial
- ----------------------------
4 The staff noted that on September 24, 1997, the Commission granted
complainant's motion to modify the temporary relief bond by retaining the
43 percent bond when the entered value of the imported articles was
appraised at transaction value, but increased the bond to 180 percent of
the entered value when the articles are appraised at other than transaction
value. Certain Hardware Logic Emulation Systems, Modification of Temporary
Relief Exclusion Order, U.S.I.T.C. Pub. No. 3074 (Nov. 1997).
3
<PAGE>
incentive to avoid the expense of further proceedings; that while the Commission
also indicated that the administrative law judge's initial determination should
decide which, if any, attorneys should be liable for the payment of the
sanctions to be awarded under the parties' stipulation, none of counsel for
Mentor Graphics Corporation and Meta Systems are held liable for the payment of
sanctions, inasmuch as respondents Mentor Graphics Corporation and Meta Systems
have assumed liability for payment of the stipulated sanctions value of
$425,000.00 (Stipulated of P. 3(b)).5
The staff, under the heading "Dollar Value of Respondents'
Bond Forfeiture," argued that the administrative law judge has been directed to
issue, within nine months, an initial determination concerning complainant's
motion for forfeiture of bonds and the cross motion for return of their bonds;6
that the initial determination should decide whether the bonds should be
forfeited, in whole or part, to complainant or returned to provider; that Motion
No. 383-145 seeks a determination that complainant is entitled to forfeiture of
the bond in the amount of $425,000 of Mentor Graphics Corporation and Meta
Systems. (Joint Motion at 2; Stipulation at P. 3(c)); that the statutory purpose
of requiring such bonds is to protect complainant from any injury due to
importations and sales of infringing goods during the pendency of the
investigation (19 U.S.C. Section 1337(e)(1)); and the stipulated forfeiture
value will avoid a potentially costly and prolonged proceeding to determine the
actual extent of injury complainant has sustained from importations and sales
under bond, and will also obviate proceedings regarding the proper valuations of
those
- -------------------------------
5 The staff noted that the assumption of the liability for payment of the
sanctions award will save the Commission considerable resources in
investigating and resolving the difficult issues of identifying specific
individuals that would be held liable for payment if the matter was
contested, and avoid the time and expense in actually assuring payment.
Accordingly, the staff argued that it appears that the Commission's
interest in assuring payment of its sanctions award will be met by a
determination that Mentor Graphics Corporation and Meta Systems have
assumed that liability. The staff further noted that while trial counsel
for respondents Mentor Graphic Corporation and Meta Systems, viz., Brobeck
Phleger & Harrison, LLP and all counsel from that firm who submitted a
notice of appearance in the investigation, were also made parties to the
remanded sanctions proceedings it does not appear they any further
determinations with respect to those attorneys are necessary for
disposition of this matter because the Commission will have no need to seek
payment of the stipulated sanctions amount from those attorneys.
6 Joint Motion No. 383-145 indicates that only the temporary relief bonds are
at issue inasmuch as no importation or other actions subject to bond have
taken place since the entry of the permanent relief orders. See n. 1 supra.
4
<PAGE>
importations and sales; and that the Stipulation provides that Mentor Graphics
Corporation and Meta Systems shall directly pay the bond forfeiture amount to
complainant as a condition precedent to termination of the investigation.
Accordingly, the staff supported a determination that complainant is entitled to
forfeiture of the bond in the amount of $425,000 (to be paid directly by
respondents Mentor Graphics Corporation and Meta Systems to complainant).
In a response dated July 20, 1998 respondents Brobeck, Phleger
& Harrison, Robert Deberardine, and William L. Anthony (Brobeck) represented
that Brobeck was unaware of and played no role in the negotiations that led up
to Motion No. 383-145 and indeed Brobeck was (apparently inadvertently) left off
the service list and was not timely served with a copy of Motion No. 383-145;
that Motion No. 383-145, including the Stipulation, is entirely silent as to
Brobeck; that because Brobeck has not engaged in any improper or sanctionable
conduct, Brobeck does not agree that any sanctions are proper or appropriate but
nevertheless understands that Mentor Graphics Corporation and Quickturn believe
that ending the current sanctions and bonding proceedings would conserve the
resources of the parties, the staff, and the Commission, and for that reason,
Brobeck has agreed to end the current proceedings by setting an amount of the
sanctions (subject to appeal regarding whether any sanctions should have been
imposed at all) and the bond; that Brobeck understands that Motion No. 383-145,
including the Stipulation is not to be construed as an admission by any of the
respondents (Mentor Graphics Corporation, Meta Systems, Brobeck, Phleger &
Harrison, Robert DeBerardine, or William L. Anthony) that any of the respondents
engaged in improper or sanctionable conduct; that with respect to the portions
of Motion No. 383-145, including Stipulation, dealing with sanctions, it is
Brobeck's understanding from reading said motion that Brobeck is not liable for
any sanctions now or in the future; and that it is Brobeck's understanding from
reading Motion No. 383-145, including the Stipulation that Mentor Graphics
Corporation alone is responsible for the payment of any sanctions that may be
ultimately affirmed upon appellate review.
Brobeck argued that, with respect to the portions of the
Motion No. 383-145, including its Stipulation, dealing with bond issues, Brobeck
is not a party to the bond proceeding and therefore has no opposition to those
portions.
5
<PAGE>
Complainant Quickturn and respondents Mentor Graphics
Corporation and Meta Systems, as stated in their joint Motion No. 383-145, wish
to conserve resources by stipulating to certain precise dollar amounts which the
administrative law judge has been ordered by the Commission to determine.
Brobeck, on the understanding that Mentor Graphics Corporation and Quickturn
believes that ending the current sanctions and bonding proceedings would
conserve the resources of the parties, the staff and the Commission, has agreed
to the end of the current proceedings.
Referring to the dollar value of awarded sanctions the
administrative law judge finds that the stipulated sanctions amount of $425,000
is a substantial and appropriate sum.7 It is apparent from the stipulation that
complainant believes the amount of $425,000 is sufficient, in combination with
the non-monetary sanctions, to account for those discovery abuses found in Order
No. 96 and adopted by the Commission in its Order which issued on March 8,
1998.8
With respect to the dollar value of respondents' bond
forfeiture, complainant's agreement to the stipulated bond forfeiture amount of
$425,000 shows that complainant believes that amount is sufficient to protect it
from any injury by any transactions of respondents Mentor Graphics Corporation
and Meta Systems. On that basis the administrative law judge finds that
complainant is entitled to forfeiture of the bond in the amount of $425,000 to
be paid directly by respondents' Mentor Graphics Corporation and Meta Systems.
The administrative law judge further finds that termination of
the two proceedings in issue based on the Stipulation would pose no threat to
the public interest. Rather the public interest is favored by the private
resolution of disputes because of the resultant conservation of time and
resources. See Certain Telephone Digital Added Main Line Systems, Components
Thereof and Products Containing Same, Inv. No. 337-TA-400, Order No. 23 (an
initial
- ------------------------------
7 The staff noted that the stipulated monetary sanctions of $425,000 is
reasonably close to the $482,502 of costs and fees sought by complainant,
citing Memorandum In Support of Complainant's Detailed Declarations
Concerning the Precise Amount of Monetary Sanctions to be Awarded Against
Respondents and Certain Ones of Their Counsel at Attachment 1 (April 2,
1998).
8 The staff, in a response dated March 28, 1998 in the sanctions proceeding,
waived any claims for monetary sanctions.
6
<PAGE>
determination terminating the investigation) and Commission's notice not to
review dated March 5, 1998.
Motion No. 383-145 is granted.
Movants have requested that any action on Motion 383-145 taken
by the administrative law judge should be by initial determination. The staff
however has requested that any action on Motion No. 383-145 should be by
recommended determination. The Commission's order which issued March 6, 1998, in
the sanctions proceeding ordered the issuance of an "initial determination"
which shall be treated in the same manner as an initial determination issued
pursuant to Commission rule 210.42(a)(1)(i).9 Moreover the Commission's order,
which issued April 29, 1998 in the bond forfeiture/return proceeding ordered the
issuance of an initial determination which pursuant to rule 210.50(d) shall have
a 45-day effective date and shall be subject to review under the provisions of
rules 210.42 through 210.45.10 Commission rules 210.42(d) and 210.42(h)(2) also
provide that the administrative law judge shall grant any motion for termination
pursuant to Commission rule 210.21, by issuing an initial determination with a
30 day effective date. Accordingly in view of the Commission's orders dated
March 6, 1998 and April 29, 1998 requiring issuance of initial determinations
and Commission's rule 210.42(d) as well as the substance of Motion No. 383-145,
and the responses to Motion No. 383-145 the administrative law judge is granting
Motion No. 383-145 via an initial determination but with a 30-day effective
date.
This initial determination is hereby CERTIFIED to the
Commission, together with supporting documentation. Pursuant to Commission rules
210.42(c) and 210.42(h)(3), this initial determination shall become the
determination of the Commission within thirty (30) days after the date of
service hereof unless the Commission, within 30 days after the date of such
service, shall have ordered review of the initial determination or certain
issues therein or by order has changed the effective date of the initial
determination.
- ----------------------------------
9 Commission rule 210.42(a)(1)(i) relates to issues concerning violation of
section 337.
10 Commission rule 210.42(c) specifically recites that the administrative law
judge shall grant a motion, for forfeiture or return of respondents' bonds
pursuant to Commission rule 210.50(d), by issuing an initial determination.
7
<PAGE>
This order will be made public unless a confidential bracketed
version is received no later than the close of business on July 31, 1998.
/s/ Paul Luckern
----------------------------------------------
Paul J. Luckern
Administrative Law Judge
Issued: July 21, 1998
8
<PAGE>
EXHIBIT H
[Exhibit consists of Customer Quotations, Purchase Orders, Department of
Treasury Customs Bond Forms, Invoices, Sales Orders, Packing Lists and other
documentation showing equipment imported under bond]
<PAGE>
EXHIBIT I
LETTERHEAD
LAW OFFICES OF LYON & LYON
August 12, 1998
CONFIDENTIAL
SUBJECT TO PROTECTIVE ORDER
Sanjay Bhandari, Esq. VIA FACSIMILE
LATHAM & WATKINS NO. (650) 463-2600
75 Willow Road
Menlo Park, CA 94025
Re: Mentor Graphics v. Quickturn
Dear Mr. Bhandari:
This letter is in response to your letter dated July 2, 1998,1 as well
as other communications we have had since then.
We share your sentiment that updating damages discovery in this case
should be done quickly, efficiently and cooperatively. In this regard, we
welcome the recent production of Mentor documents vis-a-vis a narrow group of
diverted sales, as well as price quotes to certain potential customers. Before
responding directly to the interrogatories set forth in your July 2, 1998
letter, we believe it would make sense to delineate the scope of relevant
discovery vis-a-vis Quickturn's damages contentions.
A. Scope of Relevant Discovery is Not Limited To The U.S. Market
In your July 2, 1998, and as is apparent by the price quote data
provided by your most recent productions, you seem to exempt wholesale
Mentor/Meta's outside of the U.S. activities from the scope of relevant
discovery. The case law does not support your position.
- -----------------------------
1 The lack of alacrity on our part to respond to your July 2, 1998 letter was
driven by external factors, and by no means is indicative of the importance
Quickturn attaches to the requested discovery from Mentor/Meta. As you know,
we have spoken by telephone and discussed many interim matters prior to this
letter.
<PAGE>
Sanjay Bhandari, Esq. CONFIDENTIAL
August 12, 1998 SUBJECT TO PROTECTIVE ORDER
Page 2
First, with respect to lost or diverted foreign sales, under the broad
holdings of King Instruments Corp. v. Perego, 65 F.3d 941 (Fed. Cir. 1995), and
Rite-Hite Corp. v. Kelley Co., 56 F.3d 1538 (Fed. Cir. 1995), Quickturn is
entitled to be compensated for all injuries foreseeably caused by any infringing
conduct of Mentor/Meta. Thus, for example, to the extent Mentor/Meta's domestic
U.S. infringing acts (e.g., offers to sell, sales, advertisings, etc.) are
causally connected to any injuries suffered by Quickturn outside the U.S., such
injuries are compensable. A foriori, and for example, information about
Mentor/Meta's foreign sales that are causally related to infringing acts within
the U.S., are manifestly relevant. In addition, a Mentor/Meta price quote (or
offer to sell) made from the U.S. to a potential customer outside of the U.S.
clearly would be an act of infringement. Therefore, as such, information about
price quotes, demos, benchmarks, etc. are necessary to quantify the full damage
impact of Mentor/Meta's acts. Surely, you do not contend that the market is
limited to the United States. In short, under the well-established case law, the
locus of injury is not determinative, rather, it is the existence of a causal
connection between the infringing acts of Mentor/Meta and Quickturn's injuries
that is the focus. Plainly, Quickturn needs updated discovery in this area. If
you disagree, please forward to us the legal authorities and contentions in
support of your position, and we will consider them.
B. Specific Areas Where More Information Is Needed By Quickturn
We have reviewed the documents that you recently produced. We are
pleased that progress has been made in this regard, but we believe there is
additional information that Quickturn needs before it can provide you with a
full and complete damage analysis and number. Specifically, we believe at least
the following additional items should be addressed.
On page 2 of your letter, several companies are identified where
SimExpress was demonstrated, benchmarked, or price-quoted and where such
activity was not recorded in Mentor's Wilsonville database:
<TABLE>
<CAPTION>
<S> <C> <C>
Cabletron (NH) LexMark (FL) Fujitsu (Dallas)
Kodak (Rochester, MA) Motorola (Phoenix) Alcatel (Dallas)
Nat'l Security Agency (MD) Brooktree (Austin, TX) Chip & Technology (Santa Clara)
Cisco (Raleigh & Santa Clara) TI Semiconductor (Dallas) LSI Logic (Milpitas)
Honeywell (FL) Cyrix (Dallas) Transmeta (Santa Clara)
</TABLE>
<PAGE>
Sanjay Bhandari, Esq. CONFIDENTIAL
August 12, 1998 SUBJECT TO PROTECTIVE ORDER
Page 3
We request that all documents reflecting or relating to price quotes,
benchmarks, or demos as to each of these customers or potential customers be
produced with the same level of detail as we received for e.g., UB Networks and
3Com in your August 7 production.
In addition, there are a number of customers where Quickturn believes
that Mentor was a competitor but no mention of a bid is made in your letter.
Among those customers are: Cabletron Nashusa; C-Cube EX; Cisco; DOD; HP-JCBO;
Hyundai; Lockheed M.D.; Mitsubishi; Nexland; No. Nine; SAI; T.I.; TelLabs; and
Transmeta.
We would also need to know if Wilsonville is the only database (within
or without) the U.S. that contains price quote, demo, benchmark, etc.,
information relating to offers to sell originating from the U.S. Moreover, as we
discussed earlier, Quickturn would need information2 regarding price quotes,
demos, benchmarks, etc., from the U.S. to any U.S. or non-U.S. customer.
We also note that while during the ITC proceedings, Mentor recently
produced an exhibit that listed all components and/or systems that were imported
and listed the relevant account(s) to which those items related, we have not
been informed specifically what systems those were, or how Mentor used them
(i.e., were they used to conduct benchmark tests, were they supplied to
customers that were used as reference accounts, etc.). Without knowing the
extent of Mentor's activities, Quickturn cannot adequately assess the impact of
Mentor's activities in a particular account or the resulting pricing reduction
in price in general attributable to Mentor's activities.
Therefore, in view of the above, Quickturn is able to provide you with
its present damages analysis to the extent Mentor/Meta have provided Quickturn
with information about Mentor/Meta's activities that are the subject of
Quickturn's discovery requests. We understand that this information is being
exchanged for the purpose of attempting to reach a stipulated damage figure in
the Oregon District Court action, and that the information or statements herein,
are not binding or limited in any way on either party. Moreover, the information
or statements herein are not admissible in any judicial proceedings. Subject to
the above caveat and agreement, we respond informally to your interrogatories as
follows:
C. Quickturn's Specific Interrogatory Responses
1. Interrogatory No. 1
- --------------------------------
2 With respect to some potential customers, the documents that Mentor has
produced contain price quotes with respect to the service component. We ask
that Mentor provide all information relating to price quotes, with respect to
both the product and service components.
<PAGE>
Sanjay Bhandari, Esq. CONFIDENTIAL
August 12, 1998 SUBJECT TO PROTECTIVE ORDER
Page 4
Subject to further discovery from Mentor, and based on the
investigations Quickturn has conducted thus far, Quickturn's price erosion
component of its damages is presently estimated to be $1,055,377. The
calculation details are presented in the matrix below.
<TABLE>
<CAPTION>
Customer List Price Discount
- --------------------------------------- -------------------------------------- --------------------------------------
<S> <C> <C>
CPI $REDACTED $REDACTED
C-Cube $REDACTED $REDACTED
TI $REDACTED $REDACTED
AMD $REDACTED $REDACTED
Number Nine $REDACTED $REDACTED
DEC $REDACTED $REDACTED
SAI $REDACTED $REDACTED
DOD #2 $REDACTED $REDACTED
TI $REDACTED $REDACTED
ATT $REDACTED $REDACTED
Cabletron $REDACTED $REDACTED
Motorola $REDACTED $REDACTED
10,511,188 3,683,174 (Mentor present)
25% Discount (Mentor absent) 2,627,797
Price Erosion 1,055,377 (net price erosion)
</TABLE>
Pending production of the requested records from Mentor, Quickturn has
preliminary assumed the discount level (when Mentor was not a factor) to be 25%
which is what the ALJ found to the ITC proceedings.
Quickturn reserves the right to revise its price erosion estimate based
on additional discovery. The estimate provided herein is provided solely for the
purposes of discussion regarding the damages stipulation.
2. Interrogatory No. 2
With regard to interrogatory number 2, as shown in Folsom's report,
based on the information that we have thus far, the answer is as follows:
(a) Bull (AZ); UB Networks; Motorola (TX), National Semiconductor;
Radix.
(b) Quickturn would have sold the System Realizer and the
associated service to each of these customers.
(c) REDACTED.
<PAGE>
Sanjay Bhandari, Esq. CONFIDENTIAL
August 12, 1998 SUBJECT TO PROTECTIVE ORDER
Page 5
(d) REDACTED.
(e) Mack Folsom; Ray Ostby; Jeffrey Jordan.
3. Interrogatory No. 3
In response to interrogatory number 3, again, this information can be
found in Folsom's expert report. In addition to lost sales of product/services
and price erosion with respect to U.S. and non-U.S. customer, Quickturn alleges
that the infringement by Mentor harmed Quickturn in a number of other ways:
- Reduction in prices dues to competition from Mentor
(generalized price erosion).3
- Lost sales from repeat purchasers.
- Delays in purchases from sales where Mentor was
involved.
- Reduced profits due to increased sales costs and
other expenses.
Quickturn's investigation and discovery of facts relating to these
items of damages is continuous. Quickturn will, in due course and after its
investigation and discovery is completed, provide a damage estimate regarding
these items.
4. Interrogatory No. 4
Based on the foregoing, and subject to provision of additional
information and discovery from Mentor and further investigation by Quickturn,
Quickturn presently estimates its total damages to be approximately $5,220,000
reflecting only the lost profits and price erosion it suffered because of
Mentor's infringement.
- --------------------------------------
3 When the infringer's pricing practices force the patentee to generally reduce
its price structure, the patentee is entitled to recover those in computing
its lost profits. See, e.g., Minnesota Min. & Mfg. Co. v. Johnson & Johnson,
976 F.2d. 1559, 1578-79 (Fed. Cir. 1992) (price erosion claim -- noting
vigorous price competition caused "downward trends of prices"); Kalman v.
Berlyn Corp., 914 F.2d 1473, 1485 (Fed. Cir. 1990) (affirming price erosion
granted on the basis of patentee's claim that "If [infringer] were not in the
market, I could have . . . charged a higher price and possibly more than
[infringer], but I certainly couldn't do it with [infringer] in the market.")
Plainly, to properly assess Quickturn's price erosion, Mr. Folsom would need
updated information on Mentor/Meta's pricing practices in general, not just
with respect to the specific diverted sales.
<PAGE>
Sanjay Bhandari, Esq. CONFIDENTIAL
August 12, 1998 SUBJECT TO PROTECTIVE ORDER
Page 6
As we emphasized above, the damage figure provided herein is provided
solely for the purposes of discussion regarding a possible stipulation regarding
damages. It reflects the present state of discovery and investigation of facts
by Quickturn and is not intended as a waiver of Quickturn's right to revise its
damage estimate as appropriate.
We are appreciative of your efforts in facilitating information
discovery. Nonetheless, to the extent Mentor is aware of documents that fall
within the ambit of discovery delineated herein and that have not been produced
thus far, we ask that you identify them so that Quickturn can properly assess
their importance and any claim of burdensomeness on Mentor's part. What we seek
is complete discovery.
Very truly yours,
/s/Lawrence R. LaPorte
Lawrence R. LaPorte
LRL:AFA:cc
cc: Craig Allison, Esq.
P.S. With respect to the export documents mentioned in your voicemail message of
August 6, 1998, please produce them to us for the reasons stated earlier in this
letter. With respect to the importation history aspect of your August 6, 1998
voicemail message, is it your representation that Gary Hnath's report to the ITC
references all the relevant documents? If not, please supplement.
<PAGE>
[Letterhead of Latham & Watkins]
EXHIBIT J
August 13, 1998
Via Fax
Lawrence R. LaPorte, Esq.
Lyon & Lyon
633 W. Fifth Street, Suite 4700
Los Angeles, CA 90071-2066
Re: Mentor v. Quickturn
Dear Larry:
Thank you for your letter of August 12. We are reviewing the
information you provided, and will try to get you a counterproposal, and the
additional information you requested (none of which we view as relevant), soon.
Per our conversation this morning, we have several questions
about how elements of Quickturn's damages were calculated. For example, the
prices estimated for alleged lost sales are explained neither by your letter nor
Folsom's report, and are greatly above, some more than double, Mentor's actual
sale price.
Further, until Quickturn provides specifics on the damages
claimed in the response to Interrogatory 3, we will value them at zero.1
Obviously, the longer Quickturn delays specifying those claims, the greater the
prejudice to Mentor's ability to take discovery on them.
- --------------------------
1 We have already provided the information footnote 3 of your letter offered as
a reason justifying Quickturn's failure to specify such damages. Please review
the March 21, 1996 deposition of James P. Kenney and documents provided recently
as well as in the past.
<PAGE>
LATHAM & WATKINS
August 13, 1998
Page 2
Please confirm that I have your consent to share the customer
sites identified in response to Interrogatory No. 1, the customer sites you
wanted me to follow up on (Cabletron Nashua, C-Cube EX, etc.; listed on page 3
of your letter), and Quickturn's initial demand of $5,220,000, with my client,
so that we may prepare a response.
Very truly yours,
/s/Sanjay Bhandari
Sanjay Bhandari
of LATHAM & WATKINS
cc: Craig Allison, Esq.
SF_DOCS\145553.1
<PAGE>
EXHIBIT K
LETTERHEAD
LAW OFFICES OF LYON & LYON
August 17, 1998
Sanjay Bhandari, Esq. VIA FACSIMILE
Latham & Watkins (415) 463-2600
75 Willow Road
Menlo Park, California 94025-3656
Re: Mentor v. Quickturn
Sharing Customer Site Information with Mentor
Dear Sanjay:
Thank you for your letter of August 13, 1998. In response to its final
paragraph, we consent to your sharing Quickturn's initial demand of $5,220,000
with Mentor. With regard to sharing the customer sites identified in response to
Interrogatory No. 1 and the customer sites we requested that you follow up on,
we think that the best way to proceed is to seek a modification of the
protective order by written consent. Under such a modification, you would
identify one person at Mentor to whom you would disclose that information, and
that person would agree in writing -- i.e., as a signatory to the protective
order -- not to disclose that information to any other person or entity.
Further, such a modification to the protective order would include an agreement
that Mentor, or anyone affiliated with Mentor, not contact any of the customers
that Quickturn identified in response to Interrogatory No. 1.
Please advise us whether Mentor agrees with this proposal. If so,
please forward a draft stipulated modification to the protective order for
execution by all concerned.
With respect to your voicemail message to Larry LaPorte on August 6,
1998, and our followup questions regarding that message in our letter of August
12, 1998, please advise us when we should expect a response. Specifically, you
had noted in your message the existence of certain export documents showing
SimExpress boxes being sent out of the country. We would like you to produce
these documents to us. Further, with respect to Gary Hnath's reports to the FTC,
is it your representation that these reports constitute the entire importation
history of the SimExpress product? If not, please supplement as soon as
possible.
<PAGE>
Sanjay Bhandari, Esq.
August 17, 1998
Page 2
In the meantime, we are diligently continuing our best efforts in
gathering facts pertaining to other heretofore unquantified aspects of
Quickturn's damages. We will apprise you of these facts as soon as practicable.
Sincerely,
/s/Armand F. Ayazi
Armand F. Ayazi
<PAGE>
EXHIBIT L
[Letterhead of Latham & Watkins]
September 3, 1998
CONFIDENTIAL SETTLEMENT OFFER
Via Fax
Lawrence R. LaPorte, Esq.
Lyon & Lyon
633 W. Fifth Street, Suite 4700
Los Angeles, CA 90071-2066
Re: Mentor v. Quickturn
Dear Larry:
We have reviewed Quickturn's initial demand with Mentor, and
are authorized to proceed in making a counter offer and discussing a possible
compromise.
We believe the main variables in our discussion should be as
follows:
1. Whether individual sales should be accorded diverted sale
or reasonable royalty treatment. As you know, we have
confirmed with the purchasing decision-makers at Bull,
Motorola, UB Networks and Radix that a Quickturn emulation
system would not have been purchased even had Mentor not
been a competitor. We have also confirmed with the
purchasing decision-maker at National Semiconductor that
Synopsis had at least as good a chance as Quickturn to
have made the sale ultimately made by Mentor. Thus, our
offer treats all Mentor sales as leading to a reasonable
royalty rather than lost profits.
<PAGE>
LATHAM & WATKINS
September 3, 1998
Page 2
2. What percentage recovery should be applied. Blaine Nye
disagrees sharply with Mack Folsom's estimates for the
appropriate percentage recovery for diverted sales and
reasonable royalties. Our offer uses Nye's estimates.
3. What sale price should be used. Actual sales prices
control for determination of reasonable royalties.1
Mentor's offer disallows the discounting claim as to
Cabletron. As you know from our previous letters, Mr. Jordan testified that no
discounting awarded to Cabletron was attributable to competition by Mentor
and/or Meta. Other discounting claims are permitted for the time being, pending
investigation.
Finally, Mentor's offer values all unspecified claims of
damages, including price erosion, lost or delayed sales, and increased sales
costs or other expenses, at zero.2
Given the evidence before it, for settlement purposes Mentor
values Quickturn's damages at $745,065, and offers this amount as a compromise
base amount of damages, excluding such issues as willfulness and attorneys fees,
per the draft stipulation we sent you some weeks ago (understanding, of course,
that the $425,000 stipulated by Mentor in relation to the bond-forfeiture
proceedings in the ITC is subsumed within this sum). The attached spreadsheets
detail our analysis of Quickturn's damages. Obviously, we do not expect you to
agree with every aspect of our analysis, just as no doubt you did not expect us
to agree with every aspect of your analysis. Given the time and expense that
would be entailed in discovery and proof of damages, however, it seems to us
that we should attempt to bridge the gap between your figures and ours.
Please contact me at your convenience to discuss this matter
further.
Very truly yours,
/s/Sanjay Bhandari
-------------------
Sanjay Bhandari
of LATHAM & WATKINS
cc: Craig Allison, Esq.
- ----------------------------------
1 Even if some sales could be treated as diverted sales, Folsom's estimates are
often unreasonably high. I understand from our previous discussions that you are
inquiring into the basis for these estimates.
2 Although we are willing to entertain some discussion of such claims,
Quickturn's delay in specifying those claims has already prejudiced Mentor's
ability to defend itself: we must warn you that further extended delay by
Quickturn will leave Mentor with no choice but to request that such claims and
evidence be excluded from the trial of this matter.
<PAGE>
A. QUICKTURN'S INITIAL DEMAND
<TABLE>
<CAPTION>
Diverted Sales Customer Claim % Recovery Damages
-------- ----- ---------- -------
<S> <C> <C> <C> <C>
UB Networks $1,200,000 70.00% $840,000
Nat'l Semiconductor $550,000 70.00% $385,000
Bull HN $1,500,000 70.00% $1,050,000
Radix Technologies $2,100,000 70.00% $1,470,000
Motorola $600,000 70.00% $420,000
--------
TOTAL DIVERTED SALES $4,165,000
Price Erosion Customer List Price Actual Discount
-------- ---------- ---------------
Cardiac Pacemakers $280,000 $45,000
C-Cube $585,000 $265,000
TI $1,123,750 $472,875
AMD $2,191,180 $841,180
Number Nine $978,600 $188,600
DEC $610,900 $111,403
SAI $257,500 $38,625
DOD #2 $597,300 $41,810
TI $1,121,250 $371,250
AT&T $243,000 $30,000
Cabletron $1,829,708 $1,041,811
Motorola $693,000 $235,620
-------- --------
$10,511,188 $3,683,174
Average Discount with Mentor Absent (25%) $2,627,797
TOTAL PRICE EROSION (Actual - Average) $1,055,377
Other Category of Injury Amount Specified
------------------ ----------------
Generalized Price Erosion $0
Lost Sales From Repeat Customers $0
Delays in Purchases When Mentor Involved $0
Increased Sales Costs & Other Expenses $0
--
TOTAL OTHER INJURY $0
---------------------------------------------- ------------------------------------------------
TOTAL DAMAGES $5,220,377
---------------------------------------------- ------------------------------------------------
</TABLE>
<PAGE>
B. MENTOR'S OFFER
<TABLE>
<CAPTION>
Reasonable Royalties Customer Actual Sale Price % Recovery Damages
-------- ----------------- ---------- -------
<S> <C> <C> <C> <C> <C>
UB Networks $580,268 7.80% $45,261
Nat'l Semiconductor $548,448 7.80% $42,779
Bull HN $909,091 7.80% $70,909
Radix Technologies $885,939 7.80% $69,103
Motorola $590,000 7.80% $46,020
-------
TOTAL REASONABLE ROYALTIES $274,072
Price Erosion Customer List Price Actual Discount Comment
Cardiac Pacemakers $280,000 $45,000 Allowed pending investigation
C-Cube $585,000 $265,000 Allowed pending investigation
TI $1,123,750 $472,875 Allowed pending investigation
AMD $2,191,180 $841,180 Allowed pending investigation
Number Nine $978,600 $188,600 Allowed pending investigation
DEC $610,900 $111,403 Allowed pending investigation
SAI $257,500 $38,625 Allowed pending investigation
DOD #2 $597,300 $41,810 Allowed pending investigation
TI $1,121,250 $371,250 Allowed pending investigation
AT&T $243,000 $30,000 Allowed pending investigation
Cabletron (Disallowed) (Disallowed) See Dep. of J. Jordan, at 56.
Motorola $693,000 $235,620 Allowed pending investigation
-------- --------
$8,681,480 $2,641,363
Average Discount with Mentor Absent (25%) $2,170,370
TOTAL PRICE EROSION (Actual - Average) $470,993
Other Category of Injury Amount Specified
------------------ ----------------
Generalized Price Erosion $0
Lost Sales From Repeat Customers $0
Delays in Purchases When Mentor Involved $0
Increased Sales Costs & Other Expenses $0
--
TOTAL OTHER INJURY $0
---------------------------------------------- ------------------------------------------------
TOTAL DAMAGES $745,065
---------------------------------------------- ------------------------------------------------
</TABLE>
<PAGE>
[Letterhead of Latham & Watkins]
EXHIBIT M
September 12, 1998
CONFIDENTIAL SETTLEMENT OFFER
Via Fax
Lawrence R. LaPorte, Esq.
Lyon & Lyon
633 W. Fifth Street, Suite 4700
Los Angeles, CA 90071-2066
Re: Mentor v. Quickturn
Dear Larry:
While we appreciate the spirit of compromise reflected in your
proposal of a stipulated damages figure of roughly $3.5 million (based on
Mentor's total sales revenue), we believe that our discussion should center on
the manner in which damages actually would be calculated at trial, and the
evidence we both have so far.
The declarations we have produced, including the one related
to UB Networks which accompanies this letter, establish that Quickturn can claim
only reasonable royalties as to four of Mentor's five sales. From our
discussions with knowledgeable witnesses, the same appears to be true at the
fifth sale (National Semiconductor). It seems to us that it would not be
productive or wise for Quickturn to proceed through discovery and trial on the
hope of impeaching customers who have committed under oath to a contrary
position. Further, we wonder whether Quickturn really wants to send attorneys
around the country for the purpose of trying to embarrass its potential
customers by showing their sworn statements to be uninformed or false.
<PAGE>
LATHAM & WATKINS
September 12, 1998
Page 2
Rather than pursuing this low-yield, high-cost course of
litigation, shouldn't we at least seriously attempt to stipulate on a damages
figure? Reasonable royalties are clearly the name of the game -- the only
question is the number. Your expert says 41%; ours says 7.8%. Let's just split
the difference at 24.4%, and be done with it. In the same spirit of compromise,
for present purposes we have allowed eleven of Quickturn's twelve claims of
discounting. By our calculations (detailed in the attached spreadsheet),
Quickturn's damages total $1,328,347 under these compromise conditions, to which
we are willing to stipulate.
Please respond in writing to this proposal as soon as
possible.
Very truly yours,
/s/ Sanjay Bhandari
Sanjay Bhandari
of LATHAM & WATKINS
Attachments
cc: Craig Allison, Esq.
<PAGE>
LATHAM & WATKINS
David A. York
Steven M. Bauer
Sanjay Bhandari
75 Willow Road
Menlo Park, California 94025-3656
Telephone: (650) 328-4600
Facsimile: (650) 463-2600
BALL JANIK LLP
James T. McDermott (Oregon Bar No. 93359)
One Main Place
101 Southwest Main Street, Suite 1100
Portland, OR 97204
Telephone: (503) 228-2525
Facsimile: (503) 295-1058
Attorneys for Plaintiffs-Counterdefendants
MENTOR GRAPHICS CORPORATION
and META SYSTEMS, INC.
UNITED STATES DISTRICT COURT
DISTRICT OF OREGON
MENTOR GRAPHICS CORPORATION, CASE NO. C-96-00342-RE
Plaintiff, CONSOLIDATED CASES
v.
DECLARATION OF DAN SCHUMACHER
IN SUPPORT OF PLAINTIFFS
QUICKTURN DESIGN SYSTEMS, MENTOR GRAPHICS AND META
SYSTEMS' MOTION FOR PARTIAL
SUMMARY JUDGMENT ON DAMAGES
Defendant.
- -----------------------------------
AND RELATED ACTIONS.
<PAGE>
I, Dan Schumacher, do hereby declare as follows:
1. I make the following declaration of my own personal
knowledge. If called as a witness, I could and would testify competently and
truthfully to the following facts under oath.
2. During the time periods discussed herein, I served
as the Design Automation Manager at Ungerman-Bass Networks, Inc. ("UB
Networks"), located in Andover, Massachusetts.
3. I was the main purchasing decision maker at UB
Networks as to verification technology. It was primarily my decision to purchase
an emulation system from Mentor Graphics Corporation in April 1996.
4. Had purchasing a Mentor system not been an option
for UB Networks, I would most likely have subcontracted our verification work
out to a third party. I definitely would not have purchased an emulation system
from Quickturn Design Systems, Inc.
5. In my judgment at the time, purchasing a Quickturn
emulation system would have involved hidden costs and risks that UB Networks was
too small to support. In my judgment, UB Networks would have had to purchase
several additional workstations and budget substantial personnel time to support
Quickturn's emulation system. Also, it is my view that the Quickturn emulation
systems offered us at that time had technical flaws resulting in substantial
problems to the user, such as hold-time violations.
I hereby declare under penalty of perjury that the foregoing
is true and correct. Executed this 10th day of September, 1998 in Chelmsford,
Massachusetts.
/s/ Dan Schumacher
--------------------------
DAN SCHUMACHER
4
<PAGE>
CONFIDENTIAL SETTLEMENT OFFER
<TABLE>
<CAPTION>
Reasonable Customer Actual Sale Price % Recovery * Damages
-------- ----------------- ------------ -----------
<S> <C> <C> <C> <C>
Royalties UB Networks $580,268.00 24.40% $141,585.39
Nat'l Semiconductor $548,448.00 24.40% $133,821.31
Bull HN $909,090.90 24.40% $221,818.18
Radix Technologies $885,939.00 24.40% $216,169.12
Motorola $590,000.00 24.40% $143,960.00
-----------
TOTAL REASONABLE ROYALTIES $857,354.00
* Median b/w 7.8% and 41%
Price Customer List Price Actual Discount Comment
Erosion Cardiac Pacemakers $REDACTED $REDACTED Allowed pending investigation
C-Cube $REDACTED $REDACTED Allowed pending investigation
TI $REDACTED $REDACTED Allowed pending investigation
AMD $REDACTED $REDACTED Allowed pending investigation
Number Nine $REDACTED $REDACTED Allowed pending investigation
DEC $REDACTED $REDACTED Allowed pending investigation
SAI $REDACTED $REDACTED Allowed pending investigation
DOD #2 $REDACTED $REDACTED Allowed pending investigation
TI $REDACTED $REDACTED Allowed pending investigation
AT&T $REDACTED $REDACTED Allowed pending investigation
Cabletron $REDACTED $REDACTED See Dep. of J. Jordan, at 56.
Motorola $REDACTED $REDACTED Allowed pending investigation
--------- ---------
$8,681,480 $2,641,363
Average Discount with Mentor Absent (25%) $2,170,370
TOTAL PRICE EROSION (Actual - Average) $470,993
Other Category of Injury Amount Specified
------------------ ----------------
Generalized Price Erosion $0
Lost Sales From Repeat Customer $0
Delays in Purchasers When Mentor Involved $0
Increased Sales Costs & Other Expenses $0
--
TOTAL OTHER INJURY $0
---------------------------------------------- ---- ---------------------- ----------------- ----------------
TOTAL DAMAGES $1,328,347
---------------------------------------------- ---- ---------------------- ----------------- ----------------
</TABLE>
<PAGE>
EXHIBIT N
Latham & Watkins Fax Cover Sheet
Date: August 10, 1998
To: Lawrence R. Laporte (213) 955-0440 (213) 489-1600
Lyon & Lyon LLP
From: Sanjay Bhandari
Re: DRAFT Stipulated Agreement Regarding Damages
Number of pages, including cover: 5
Message: [none]
<PAGE>
UNITED STATES DISTRICT COURT
DISTRICT OF OREGON
MENTOR GRAPHICS CORPORATION, CASE NO. C-96-00342-RE
Plaintiff, CONSOLIDATED CASES
v.
STIPULATED AGREEMENT
REGARDING DAMAGES
QUICKTURN DESIGN SYSTEMS,
Defendant.
AND RELATED ACTIONS.
DRAFT
<PAGE>
This Stipulated Agreement Regarding Damages ("Agreement") is made by
and between Mentor Graphics Corporation and Meta Systems, Inc. (collectively
"Mentor"), on the one hand, and Quickturn Design Systems, Inc. ("Quickturn"), on
the other hand. Mentor and Quickturn are collectively referred to herein as "the
Parties." This Agreement shall be effective upon execution by the Parties or
their authorized representatives.
The Parties wish to conserve resources by stipulating certain monetary
matters at issue in the consolidated cases pending before Senior Judge Redden of
the United States District Court of Oregon, Case No. 94-0342 (RE). THEREFORE, in
consideration for the mutual promises contained herein, the Parties hereby agree
and stipulate as follows for all purposes in the above-entitled action,
including any appeal(s):
I. STIPULATED BASE AMOUNT OF DAMAGES
If Quickturn prevails on the issue of liability on one or all of the
Quickturn patents in suit, its damages under 35 U.S.C. Section 284 in the
above-entitled action shall be deemed for all purposes to be _______________
(_____________ Dollars) (the "Stipulated Base Amount"). The Stipulated Base
Amount shall be Quickturn's total monetary recovery in this action regardless of
legal theory and regardless of the number of patents and theories upon which it
may prevail, except for enhancement of damages and reasonable attorneys fees and
costs which are addressed in the following sections.
II. ENHANCEMENT OF DAMAGES
The Stipulated Base Amount shall be used as the amount to be increased
by the Court under 35 U.S.C. Section 284 if the Court determines that such
enhancement of damages is appropriate in this case. The parties make no
agreement as to whether enhancement is appropriate in this case.
III. PROOF OF DAMAGES
No proof shall be presented on damages issues under 35 U.S.C. Sections
284-286 except as follows: (a) the appropriateness of enhancement of damages
under 35 U.S.C. Section 284; (b) the level of enhancement that would be
appropriate; (c) the appropriateness of awarding reasonable attorney fees under
35 U.S.C. Section 285; and (d) the amount of attorney fees that would be
2
<PAGE>
reasonable. These issues shall be tried to the Court.
IV. NO ADMISSION OF LIABILITY
The execution of this Agreement shall not constitute or be construed as
an admission of any liability whatsoever by Mentor.
V. AUTHORITY
The persons signing this Agreement represent that they have the
authority to execute this Agreement on behalf of the Parties.
VI. COMPLETE AGREEMENT
This Agreement represents the complete and exclusive statement of the
Agreement between the Parties, and with respect to the subject matters covered
hereby, supersedes all prior and contemporaneous promises and agreements of any
kind, as well as all negotiations and discussions between the Parties hereto
and/or their respective legal counsel. No other agreements, covenants,
representations, or warranties, express or implied, oral or written, have been
made by any of the Parties hereto concerning the subject matter hereof. This is
an integrated agreement.
VII. AMENDMENTS
Any amendment to this Agreement must be in writing and signed by duly
authorized representatives of each of the Parties hereto and must expressly
state that it is the intention of each of the Parties hereto to amend the
Agreement.
[Rest of page intentionally left blank.]
3
<PAGE>
VIII. COUNTERPARTS
This Agreement may be executed in one or more counterparts, each of
which when so executed and delivered will be deemed an original but all of which
will constitute one and the same Agreement.
IN WITNESS WHEREOF, the Parties hereto have executed this Stipulated
Agreement Regarding Damages on the dates indicated below.
Dated: August ___, 1998
LATHAM & WATKINS
By
----------------------------------
David A. York
Attorneys for Plaintiffs-
Counterdefendants
MENTOR GRAPHICS CORPORATION
and META SYSTEMS, INC.
Dated: August ___, 1998
LYON & LYON LLP
By
----------------------------------
James C. Brooks
Attorneys for Plaintiffs-
Counterdefendants
QUICKTURN DESIGN SYSTEMS, INC.
DRAFT
4
<PAGE>
LYON & LYON LLP EXHIBIT O
A Limited Liability Partnership
Including Professional Corporations
JAMES W. GERIAK
JAMES C. BROOKS
HOPE E. MELVILLE
THEODORE S. MACEIKO
633 West Fifth Street, Suite 4700
Los Angeles, California 90071-2066
(213) 489-1600
MARGER, JOHNSON, McCOLLOM & STOLOWITZ, P.C.
1030 S.W. Morrison Street
Portland, Oregon 97205
(503) 222-3613
Attorneys for Defendant
QUICKTURN DESIGN SYSTEMS, INC.
UNITED STATES DISTRICT COURT
DISTRICT OF OREGON
MENTOR GRAPHICS CORPORATION, Civil No. C96-00342-RE
an Oregon corporation
CONSOLIDATED CASES
Plaintiff,
v. QUICKTURN'S OPPOSITION TO
PLAINTIFF'S MOTION TO
BIFURCATE THE TRIAL AND
DISCOVERY AS TO THE ISSUES
OF LIABILITY AND DAMAGES
QUICKTURN DESIGN SYSTEMS, INC.,
a Delaware corporation,
Defendant.
META SYSTEMS, a French
corporation,
Plaintiff,
v.
QUICKTURN DESIGN SYSTEMS, INC.,
a Delaware corporation,
Defendant.
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
I. INTRODUCTION...................................................................................................2
II. BACKGROUND....................................................................................................2
III. APPLICABLE LAW REGARDING MOTIONS FOR BIFURCATION UNDER RULE 42(B), FED. R. CIV. P............................3
IV. DEFENDANT HAS FAILED TO MEET ITS BURDEN TO SHOW THAT BIFURCATION IS WARRANTED HERE............................5
A. SOME DAMAGES ISSUES REMAIN IN THE ITC PROCEEDINGS, AND DAMAGES DISCOVERY WILL PROCEED ON THOSE ISSUES..........5
B. THE DAMAGES ISSUES HERE ARE NOT COMPLEX........................................................................5
C. THERE IS EVIDENTIARY OVERLAP BETWEEN LIABILITY AND DAMAGES ISSUES..............................................6
D. BIFURCATION WOULD UNDULY DELAY RESOLUTION OF THIS LITIGATION...................................................7
E. THE CURRENT DISCOVERY SCHEDULE DOES NOT PROVIDE FOR DUPLICATIVE DAMAGES DISCOVERY..............................7
F. BIFURCATION AND STAY OF DAMAGES DISCOVERY WOULD PROMOTE DISCOVERY DISPUTES BETWEEN THE PARTIES.................8
V. CONCLUSION.....................................................................................................9
</TABLE>
<PAGE>
I. INTRODUCTION
Mentor has failed to show, as it has the burden to do under
Rule 42(b) that any real expedition or economy would result from the bifurcation
order it seeks. Neither has Mentor shown that grant of its motion for
bifurcation of discovery and trial of liability and damages issues in this case
would actually further convenience or avoid prejudice.
The damages issues in this case are not complex. In addition,
the damages issues involve evidence which overlaps liability issues regarding
the commercial success of the patented product, and involve evidence for which
discovery regarding remedy and bonding is currently being taken in the ITC
proceedings.
Accordingly, bifurcation of damages issues in this case would
require duplication of the presentation of evidence at trial, unduly and
unnecessarily prolong final disposition of all of the issues of this case to
defendant Quickturn's prejudice, and would promote discovery disputes as to
whether requested evidence is currently discoverable as relevant to liability
issues.
Since no meaningful efficiencies have been shown or would
result from bifurcation, Mentor's motion must be denied.
II. BACKGROUND
The major premise of plaintiff Mentor Graphics Corporation's
(Mentor's) Motion to Bifurcate the Trial and Discovery As To The Issues of
Liability And Damages, -- namely, that the present Scheduling Order of the Court
is "unwieldy and duplicative", is an incorrect premise and misses the mark
entirely for the following reasons.
First, the damages discovery sought is directed to Mentor's
relatively small number of actual sales and offers for sale. This amount of
discovery is not "unwieldy".
Second, the current discovery schedule is not duplicative. The
only damages fact discovery needed after the October 1996 discovery cut-off date
will be supplemental fact discovery of Mentor's sales activity between the
discovery cut-off date and the date of trial -- approximately a ten-month
period. Thus, plaintiff's "duplicative" argument is erroneous.
Third, damages issues in this case, where there are a finite
and relatively small number of sales and offers to sell of a single category of
infringing product, are not complex.
<PAGE>
Fourth, and of equal importance, the ITC rules presently allow
discovery regarding Mentor's sales and marketing activities for the issues of
remedy, bonding and the public interest during the Presidential review period
after final decision by the ITC. Discovery on these issues has already been
served on Mentor or Meta.
Fifth, the Mentor witnesses whose dispositions will be taken
on the ITC issues of remedy, bonding and the public interest, will be the same
witnesses who will provide damage related discovery in the District Court
action. Thus, there is an overlap of discovery between damages discovery in this
action and the remedy, bonding and public interest issues in the ITC.
Accordingly, because virtually the same discovery is presently
being taken in the ITC, and because the discovery is relatively straightforward
and relates to a finite number of sales and offers to sell by Mentor, there are
no real efficiencies to be gained by bifurcating the damages issues in this
case.
III. APPLICABLE LAW REGARDING MOTIONS FOR BIFURCATION UNDER RULE 42(B), Fed. R.
Civ. P.
Rule 42(b), Fed. R. Civ. P., provides that a Court may order
separate trials of issues "in furtherance of convenience or to avoid prejudice,
or when separate trials will be conducive to expedition and economy".
Notwithstanding the Court's discretion, separation of issues for trial is not to
be routinely ordered. See Advisory Committee Note to the 1966 Amendment to Rule
42(b). ("...[S]eparation of issues for trial is not to be routinely ordered...")
See also Keyes Fibre Co. v. Packaging Corporation of America, 763 F. Supp. 374,
(N.D. Ill. 1991). Bifurcation is the exception, and not the rule. Kennecott
Corp. v. Kyocera Int'l, Inc., 7 U.S.P.Q.2d 1911, 1912 (S.D. Cal. 1988).1
In patent actions, as in any other action, an order for
separate trials should not be made routinely, but must be the result of an
informal exercise of discretion on a case-by-case basis, and separate trials
should be ordered only when separation will really result in judicial economy
and not create unnecessary delay, additional expense, or some other form of
prejudice.
- ----------------------------
1 For the Court's convenience, copies of all cited decisions which are
reported in the United States Patent Quarterly (U.S.P.Q.) are provided
attached to the accompanying Declaration of H. Melville.
<PAGE>
See Willemijn Houdstermaatschaapij BV v. Apollo Computer, Inc., 707 F. Supp.
1429, 1433 (D. Del. 1989); Spectra-Physics Lasers, Inc. v. Uniphase Corp., 144
F.R.D. 99, 101 (N.D. Cal. 1992); THK America Inc. v. Nippon Seiko KK, 141 F.R.D.
463, 464 (N.D. Ill. 1991).
Motions for bifurcation of patent infringement liability and
damages issues are denied where there is overlapping evidence relating to both
issues. E.g., Willemijn, 707 F. Supp. at 1434; Joy Technologies, Inc. v. Flakt,
Inc., 772 F. Supp. 842, 848 (D. Del. 1991); Output Technology Corp. v.
Dataproducts Corp., 22 U.S.P.Q.2d 1072, 1073 (W.D. Wash. 1991). Such overlapping
evidence means that no substantial economies or convenience would really result
from bifurcation of issues. See Brad Ragan, Inc. v. Shrader's, Inc., 89 F.R.D.
548, 550 (S.D. Ohio 1981); THK, 141 F.R.D. at 465; Keyes, 763 F. Supp. at 375.
That is the case here where there is almost a complete overlap of discovery
regarding the damages issues in this case and discovery presently ongoing in the
ITC investigation on the issues of remedy, bonding and the public interest
during the Presidential review period.
Motions for bifurcation of patent infringement liability and
damages issues are also denied where the damage issues, standing alone, have not
been shown to be particularly complex. See, e.g., Keyes, 763 F. Supp. at 376;
Brad Ragan, 89 F.R.D. at 550; Output, 22 U.S.P.Q.2d at 1073. See also IPPV
Enterprises v. Cable/Home Communications Corp., 26 U.S.P.Q.2d 1714, 1717 (S.D.
Cal. 1993) ("although it appears the liability stage may be complex, it's not
clear that the damage phase will be.") Damages discovery in the present case
relates primarily to a finite number of sales and offers to sell by Mentor.
Finally, proposals for separate trial of patent liability and
damages issues are also denied where the proposal unduly lengthens the
litigation to the non-moving party's financial prejudice, including where an
extensive discovery period between trial on liability and damages would result.
See, e.g., THK, 141 F.R.D. at 465; IPPV, 26 U.S.P.Q.2d at 1717; Willemijn, 707
F. Supp. at 1435 ("prejudice under these circumstances may simply amount to
unfair delay in the final disposition of the matter.") In the present case,
bifurcation would unduly lengthen the litigation to Quickturn's detriment.
The moving party bears the burden of proving that bifurcation
is justified given
<PAGE>
the facts of the case. Spectra-Physics, 144 F.R.D. at 101; ; Output, 22
U.S.P.Q.2d at 1073. That burden is not met by general arguments not tailored to
the specifics of the case. THK, 141 F.R.D. at 464; IPPV, 26 U.S.P.Q.2d at 1717.
The present motion fails entirely to provide any specifics on the alleged
judicial efficiencies that will result from the requested bifurcation.
IV. DEFENDANT HAS FAILED TO MEET ITS BURDEN TO SHOW THAT BIFURCATION IS
WARRANTED HERE
A. Some Damages Issues Remain In The ITC Proceedings, And
Damages Discovery Will Proceed On Those Issues
Mentor bases its motion, in substantial part, on its incorrect
assertion that discovery of Mentor's sales and marketing efforts are not at
issue in the ITC investigation. Mentor would lead the Court to believe, again
incorrectly, that no such discovery is needed for resolution of the issues in
the ITC investigation.
In fact, discovery in the ITC investigation which is relevant
to the issues of remedy and bonding for the permanent phase is authorized under
Commission Rule 210.27(b), has been noticed by Quickturn in the ITC, and is
proceeding. In determining the matters of remedy and bonding in the permanent
relief phase pursuant to Commission Rule 210.42(a)(1)(ii), the ITC and the ALJ
are authorized to consider the facts and circumstances regarding each actual
sale of an infringing emulation system in the United States, and Quickturn is
proceeding to obtain such discovery in the ITC investigation.
Therefore the convenience and economy which Mentor asserts can
be obtained by bifurcation and stay of damages issues in this case will not
occur since, among other reasons, sales and marketing discovery will be
proceeding anyway in the ITC investigation.
B. The Damages Issues Here Are Not Complex
While the technology underlying the patents at issue here may
be sophisticated and raise complex patent infringement and validity issues, that
does not mean that the damages issues are also complex. Quickturn expects its
damages case to be relatively straightforward. Currently, there have only been
two or three sales made by Mentor of the products accused of infringement.
Quickturn does not expect there will be a large number of additional sales prior
to
<PAGE>
trial of this case, in part due to the temporary exclusion order the temporary
cease and desist order recently issued by the International Trade Commission.
There is a single category of products accused of infringement, so that damages
calculations will merely require application of a single royalty or lost profits
figure to the number of sales made by Mentor. Accordingly, trial of the damages
issues will not be complex or time-consuming. See, Keyes, 763 F. Supp. at 376
(calculations of damages will be relatively straightforward given the limited
sales of the product at issue).
Furthermore, some discovery has already been taken in the ITC
on Mentor's sales and marketing activities prior to the TEO hearing in April,
1996. As discussed above, additional discovery has been noticed in the ITC, and
the parties are well under way with regard to completing such discovery.
Thus, relative to the liability phase of this action, the
damages phase should be simple and short. Damages proofs will consume a limited
portion of the time allotted for trial. The damages record will be relatively
straightforward, particularly since Quickturn, during the liability phase of the
trial, intends to educate the jury about Quickturn's role in pioneering the
emulation industry and the relationship between emulation and other forms of
automated electronic design activities.
Where, as here, the damages case will not be complex,
bifurcation is not warranted. See, e.g., Output, 22 U.S.P.Q.2d at 1073; IPPV, 26
U.S.P.Q.2d at 1717; Brad Ragan, 89 F.R.D. at 550.
C. There Is Evidentiary Overlap Between Liability and Damages
Issues
Commercial success is a factor in determining whether the
inventions claimed in Quickturn's patents-in-suit are non-obvious over the prior
art. See Willemijn, 707 F. Supp. at 1434. This is particularly true for the
Sample patents at issue, which are not subject to assignor estoppel and are
therefore open to Mentor's validity attacks. Evidence of Quickturn emulation
product sales needed to establish commercial success, including evidence of unit
and dollar sales volume and profits, will be equally relevant to determining
Quickturn's damages under both lost profits and reasonable royalty theories. See
IPPV, 26 U.S.P.Q.2d at 1716-1717.
<PAGE>
Such overlap of evidence regarding commercial success between
the liability (patent validity) and damages issues does not favor bifurcation.
See, e.g., Output, 22 U.S.P.Q.2d at 1073; Joy, 772 F. Supp. at 848.
D. Bifurcation Would Unduly Delay Resolution Of This Litigation
Logic dictates that holding two trials in this action, first a
liability trial and then damages trial after taking damages discovery, will
inevitably delay resolution of the instant case. Such delay can unduly prejudice
the non-moving party, see Willemijn, 707 F. Supp. at 1435, unless the moving
party demonstrates how such prejudice would be avoided. Spectra-Physics, 144
F.R.D. at 101.
Mentor's proposal for conducting damages discovery and trial
after a liability trial "unduly lengthens the litigation because it permits what
may well be an extensive discovery period between the trial on liability and the
trial on damages. It also prejudices [the patentee] financially." THK, 141
F.R.D. at 465. Mentor has not demonstrated how such prejudice to Quickturn will
be avoided.2
Mentor's efficiency argument is that if the Court were to
bifurcation the trial and Mentor prevailed on the infringement issue, there
would be no trial on damages. This tenuous possible efficiency, however, is
outweighed by the alternative possibility: if Mentor "were to lose on liability,
the two trials would end up taking considerably more time than would have been
required to reach the same outcome with a single trial." Willemijn, 707 F. Supp.
at 1435. This is particularly so since trial of damages could not occur until
after damages discovery, potentially requiring the selection of a second jury.
In such instances, bifurcation is denied. Id.
E. The Current Discovery Schedule Does Not Provide For
Duplicative Damages Discovery
Mentor makes the bewildering argument that the current
discovery schedule for the case somehow results in taking discovery twice and is
somehow "unwieldy". Such is plainly not the case.
- -----------------------------
2 There is substantial economic disparity between the parties here, since
Mentor is over four times larger than Quickturn.
<PAGE>
The current discovery schedule calls for taking damages fact
discovery, at the same time as liability fact discovery, prior to the fact
discovery cut-off date of October 31, 1996. That fact discovery, on all issues,
would of course be supplemented prior to trial pursuant to the provisions of
FRCP Rule 26(e), as in any litigation. Expert reports on damages for this case,
and depositions of those experts, are scheduled for shortly before trial. No
repetition or duplicative damages discovery results from this schedule, and
instead the current schedule provides for orderly completion of discovery of the
damages issues without the undue delay which would result from stay of damages
discovery until after trial of liability issues.
F. Bifurcation and Stay of Damages Discovery Would Promote
Discovery Disputes Between the Parties
If damages issues were bifurcated as sought by Mentor,
damages-type information relevant to the liability portion of the trial would
nevertheless still be discoverable, as noted in one of the cases Mentor relies
on, Giro Sport Design, Inc. v. Pro-Tec, Inc., 10 U.S.P.Q.2d 1863, 1865 (N.D.
Cal. 1989). Therefore if the motion to bifurcate damages issues and discovery
were granted, it would inevitably result in disputes regarding the relevancy and
discoverability of evidence relating to damages during discovery of the
liability phase. See Willemijn, 707 F. Supp. at 1435. Such needless disputes,
and any attendant judicial intervention required to resolve the disputes, can be
avoided by merely proceeding according to the current discovery schedule and
completing damages and liability fact discovery at the same time.3
- ---------------------------------
3 Quickturn takes no position at this time as to whether it may be
appropriate, at trial, to have the jury first hear and decide the liability
issues, and then have the same jury proceed immediately to hear and decide
the damages issues, nor has this possibility been raised. See IPPV, 26
U.S.P.Q.2d at 1717. Should the Court desire such a bifurcated trial,
judicial economy nonetheless dictates that discovery not be bifurcated for
all the reasons enumerated above.
<PAGE>
V. CONCLUSION
For the foregoing reasons, plaintiff's motion to bifurcate
this action, requesting an Order to permitting discovery and trial on the issues
of damages to go forward only following trial of the patent infringement
liability issues, must be denied.
Respectfully submitted,
MARGER, JOHNSON, McCOLLOM &
STOLOWITZ, P.C.
Dated: August 30, 1996 By: /s/Alan T. McCollom
------------------------------------
Alan T. McCollom
1030 S.W. Morrison Street
Portland, Oregon 97205
(503) 222-3613
Attorneys for Defendant
QUICKTURN DESIGN SYSTEMS, INC.
LYON & LYON LLP
James W. Geriak
James C. Brooks
Hope E. Melville
Theodore S. Maceiko
633 West Fifth Street, Suite 4700
Los Angeles, CA 90071-2066
(213) 489-1600
Attorneys for Defendant
QUICKTURN DESIGN SYSTEMS, INC.
<PAGE>
CERTIFICATE OF SERVICE
I hereby certify that a true and correct copy of the foregoing
QUICKTURN'S OPPOSITION TO PLAINTIFF'S MOTION TO BIFURCATE THE TRIAL AND
DISCOVERY AS TO THE ISSUES OF LIABILITY AND DAMAGES is being served this 30th
day of August, 1996 upon the following attorneys for Mentor Graphics Corporation
and Meta Systems by hand delivery to:
James T. McDermott
BALL, JANIK & NOVACK
101 S.W. Main Street
Portland, Oregon 97204
and by deposit in the United States Postal Service, postage prepaid, to:
William L. Anthony, Jr.
Robert DeBerardine
Craig Y. Allison
BROBECK, PHLEGER & HARRISON
Two Embarcadero Place
2200 Geng Road
Palo Alto, California 94303
/s/
----------------------------------------------
<PAGE>
<PAGE>
LATHAM & WATKINS EXHIBIT P
David A. York
Steven M. Bauer
Sanjay Bhandari
75 Willow Road
Menlo Park, California 94025-3656
Telephone: (650) 328-4600
Facsimile: (650) 463-2600
BALL JANIK LLP
James T. McDermott (Oregon Bar No. 93359)
One Main Place
101 Southwest Main Street, Suite 1100
Portland, OR 97204
Telephone: (503) 228-2525
Facsimile: (503) 295-1058
Attorneys for Plaintiffs-Counterdefendants
MENTOR GRAPHICS CORPORATION
and META SYSTEMS, INC.
UNITED STATES DISTRICT COURT
DISTRICT OF OREGON
MENTOR GRAPHICS CORPORATION, CASE NO. C-96-00342-RE
Plaintiff, CONSOLIDATED CASES
v.
DECLARATION OF [DECLARANT] IN
SUPPORT OF PLAINTIFFS MENTOR
QUICKTURN DESIGN SYSTEMS, GRAPHICS AND META SYSTEMS'
MOTION FOR PARTIAL SUMMARY
JUDGMENT ON DAMAGES
Defendant.
AND RELATED ACTIONS.
<PAGE>
I, Chuong H. Nguyen, do hereby declare as follows:
1. I make the following declaration of my own
personal knowledge. If called as a witness, I could and would testify
competently and truthfully to the following facts under oath.
2. I am currently the Member of Technical Staff at
Motorola Semiconductor Product Sector, Communication Transmission & Access
Systems Division, in Austin, Texas, and served in a similar capacity during the
time periods discussed herein.
3. In late 1996, Motorola leased an emulation system
with option to purchase from Mentor Graphics Corporation. Quickturn Design
Systems generally competed with Mentor Graphics on the emulation business.
4. I was a decision-maker at Motorola as to which
vendor -- Mentor or Quickturn -- would be selected on this particular contract.
5. The primary reason Quickturn was not selected was
because I did not feel that their product would satisfy our project's needs.
Therefore, if Mentor's SimExpress was not an option for Motorola, I would not
have purchased any emulation system.
I declare under penalty of perjury that the foregoing
is true and correct. Executed this 9th day of July, 1998 in Austin, Texas.
/s/Chuong H. Nguyen
-------------------------------
[DECLARANT]
2
<PAGE>
BALL JANIK LLP EXHIBIT Q
James T. McDermott (Oregon Bar No. 93359)
One Main Place
101 Southwest Main Street, Suite 1100
Portland, OR 97204
Telephone: (503) 228-2525
Facsimile: (503) 295-1058
LATHAM & WATKINS
David A. York
Steven M. Bauer
Sanjay Bhandari
75 Willow Road
Menlo Park, California 94025-3656
Telephone: (650) 328-4600
Facsimile: (650) 463-2600
Attorneys for Plaintiffs-Counterdefendants
MENTOR GRAPHICS CORPORATION
and META SYSTEMS, INC.
UNITED STATES DISTRICT COURT
DISTRICT OF OREGON
MENTOR GRAPHICS CORPORATION, CASE NO. C-96-00342-RE
Plaintiff, CONSOLIDATED CASES
v.
DECLARATION OF RUSSELL W.
GUENTHNER IN SUPPORT OF
QUICKTURN DESIGN SYSTEMS, PLAINTIFFS MENTOR GRAPHICS
AND META SYSTEMS' MOTION FOR
PARTIAL SUMMARY JUDGMENT ON
DAMAGES
Defendant.
AND RELATED ACTIONS.
<PAGE>
I, Russell W. Guenthner, do hereby declare as follows:
1. I make the following declaration of my own
personal knowledge. If called as a witness, I could and would testify
competently and truthfully to the following facts under oath.
2. I am currently an Engineering Fellow, Staff
Engineer Two, at Bull HN Information Systems, Inc., in Phoenix, Arizona, and
served in a similar capacity during the time periods discussed herein.
3. I was a participant in the internal
decision-making process at Bull HN and Bull S.A. (France) as to what product
would be used in connection with emulation and simulation amenable aspects of an
internal design project we called the "Jupiter" project.
4. Bull is a very sophisticated customer for
simulation and emulation products with large internal capabilities in
development of design tools, both software and hardware.
5. Bull's decision for purchase was made by a
technical team, based on a technical evaluation of three vendors: Quickturn,
Meta, and ZyCad. The recommendation of the team was to buy Meta's emulation
system.
6. Our team closely examined Quickturn's system.
Within the team, I was assigned the role of Quickturn's evaluator and
advocate, and in that role argued for purchase of Quickturn's system. My main
argument for choice of Quickturn was the relative sizes of Meta and Quickturn
companies, with risk of Meta being that they were a new and smaller company than
Quickturn. My recommendation that the team consider the Quickturn system was
based upon promised functionalities that were not then in existence.
7. Ultimately, as a team, we decided that Quickturn's
emulation system did not satisfy our project needs and would not likely be
enhanced to meet our project needs within our timeframe. The deficiencies were
mainly in terms of 1) compile time and 2) the cycle time that was achievable on
the Quickturn system. We had absolute requirements on a lower limit for cycle
time based on the lowest speed that the rest of our system would run.
8. Our team based our conclusion that Quickturn's
system could not satisfy our project needs based mostly upon 1) our own internal
evaluation of the system, and 2)
2
<PAGE>
considerations from presentations by Quickturn personnel.
9. Quickturn's emulation system was rejected by our
Bull even after Quickturn offered to reduce its price to approximately one-half
the price of the Meta system.
10. If importation of Meta's system had not been an
option, our team would not have recommended purchase of the Quickturn system.
Rather, we would have chosen one of several other options. Two of those options
were: 1) to keep the emulation aspects of our project in Bull's French facility
(Les Clayes, France), or 2) to continue our design process using the ZyCad
machines that we already had in place in both Phoenix, Arizona and France. We
had also discussed seriously with ZyCad the possibility of expanding our already
existing emulation/ simulation facilities in Phoenix but that option was not
pursued because the Meta solution was more performant. The most likely of these
scenarios would have been to keep the emulation work in France which was
feasible because the project for which the Meta emulation system was being
expanded was a joint engineering effort between engineers in France and
engineers in Phoenix (about 2/3 France and 1/3 Phoenix).
I declare under penalty of perjury that the foregoing
is true and correct. Executed June 19, 1998 in Phoenix, Arizona.
/s/Russell W. Guenthner
------------------------------
RUSSELL W. GUENTHNER
3
<PAGE>
LATHAM & WATKINS EXHIBIT R
David A. York
Steven M. Bauer
Sanjay Bhandari
75 Willow Road
Menlo Park, California 94025-3656
Telephone: (650) 328-4600
Facsimile: (650) 463-2600
BALL JANIK LLP
James T. McDermott (Oregon Bar No. 93359)
One Main Place
101 Southwest Main Street, Suite 1100
Portland, OR 97204
Telephone: (503) 228-2525
Facsimile: (503) 295-1058
Attorneys for Plaintiffs-Counterdefendants
MENTOR GRAPHICS CORPORATION
and META SYSTEMS, INC.
UNITED STATES DISTRICT COURT
DISTRICT OF OREGON
MENTOR GRAPHICS CORPORATION, CASE NO. C-96-00342-RE
Plaintiff, CONSOLIDATED CASES
v.
DECLARATION OF TIM PARKER IN
SUPPORT OF PLAINTIFFS MENTOR
QUICKTURN DESIGN SYSTEMS, GRAPHICS AND META SYSTEMS'
MOTION FOR PARTIAL SUMMARY
JUDGMENT ON DAMAGES
Defendant.
AND RELATED ACTIONS.
I, Tim Parker, do hereby declare as follows:
1. I make the following declaration of my own personal
knowledge. If called as a witness, I could and would testify competently and
truthfully to the following facts under oath.
2. I am a Sr ASIC Engineer at Radix Technologies, located in
Mountain View, California, and served as the ASIC technical project manager at
Radix during the time periods discussed herein.
<PAGE>
3. From approximately six months 1995 to mid-1996, Radix was
comparing various design verification options for a planned project involving a
ASIC DSP coprocessor and DSP software development. Emulation was selected to
accelerate DSP software development schedules only. Workstation simulation was
sufficient for ASIC verification. We required an almost turnkey implementation.
Additionally, due to our staffing shortages, product support was heavily
weighted in our decision process. We considered a number of vendors for the
aspects of our design process amenable to emulation. These vendors included
IKOS, Quickturn Design Systems, and Mentor Graphics Corporation.
4. I lead the technical committee that was given the
responsibility at Radix of deciding which vendor - IKOS, Quickturn, or Mentor
would be selected. Overall, Quickturn placed third in our rankings, behind both
Mentor and IKOS.
5. Quickturn's third place ranking resulted primarily from the
following factors. First, I had worked with Quickturn emulation products before
at Kaiser Electronics, and found the product to be unreliable, also, Quickturn
product support was poor at best. Second, Quickturn's team was unwilling and
apparently unable to demonstrate that the product could successfully map our
design. That is, they did not perform our benchmark mapping of a completed
portion of our design into their emulation system. Hence, they did not run our
benchmark verification vectors against the mapped design. Mentor was the only
company that successfully mapped and verified our design benchmark. Third, they
did not meet the final dead lines for quote and proposal.
6. Our technical committee unanimously selected Mentor as the
lead contender around the middle of 1996. IKOS was the second contender in my
mind and the minds of other committee members. During the final negotiations in
mid-1996 for purchase of the machine, only Mentor and IKOS were discussed.
7. Some months after we acquired the Mentor emulation system,
Radix ended up having to transfer it to a third party for reasons confidential
to Radix. Radix has not used other emulation based design verification tools
since then, nor do we foresee a need in the near future.
2
<PAGE>
I hereby declare under penalty of perjury that the foregoing
is true and correct. Executed June 24, 1998 in Mountain View, California.
/s/Tim Parker
-------------------------------
TIM PARKER
3
<PAGE>
LATHAM & WATKINS EXHIBIT S
David A. York
Steven M. Bauer
Sanjay Bhandari
75 Willow Road
Menlo Park, California 94025-3656
Telephone: (650) 328-4600
Facsimile: (650) 463-2600
BALL JANIK LLP
James T. McDermott (Oregon Bar No. 93359)
One Main Place
101 Southwest Main Street, Suite 1100
Portland, OR 97204
Telephone: (503) 228-2525
Facsimile: (503) 295-1058
Attorneys for Plaintiffs-Counterdefendants
MENTOR GRAPHICS CORPORATION
and META SYSTEMS, INC.
UNITED STATES DISTRICT COURT
DISTRICT OF OREGON
MENTOR GRAPHICS CORPORATION, CASE NO. C-96-00342-RE
Plaintiff, CONSOLIDATED CASES
v.
DECLARATION OF DAN
SCHUMACHER IN SUPPORT OF
PLAINTIFFS QUICKTURN
DESIGN SYSTEMS,
MENTOR GRAPHICS AND META
SYSTEMS' MOTION FOR
PARTIAL SUMMARY JUDGMENT
ON DAMAGES
Defendant.
AND RELATED ACTIONS.
<PAGE>
I, Dan Schumacher, do hereby declare as follows:
1. I make the following declaration of my own personal
knowledge. If called as a witness, I could and would testify competently and
truthfully to the following facts under oath.
2. During the time periods discussed herein, I served as the
Design Automation Manager at Ungerman-Bass Networks, Inc. ("UB Networks"),
located in Andover, Massachusetts.
3. I was the main purchasing decision maker at UB Networks as
to verification technology. It was primarily my decision to purchase an
emulation system from Mentor Graphics Corporation in April 1996.
4. Had purchasing a Mentor system not been an option for UB
Networks, I would most likely have subcontracted our verification work out to a
third party. I definitely would not have purchased an emulation system from
Quickturn Design Systems, Inc.
5. In my judgment at the time, purchasing a Quickturn
emulation system would have involved hidden costs and risks that UB Networks was
too small to support. In my judgment, UB Networks would have had to purchase
several additional workstations and budget substantial personnel time to support
Quickturn's emulation system. Also, it is my view that the Quickturn emulation
systems offered us at that time had technical flaws resulting in substantial
problems to the user, such as hold-time violations.
I hereby declare under penalty of perjury that the foregoing
is true and correct. Executed this 10th day of September, 1998 in Chelmsford,
Massachusetts.
/s/Dan Schumacher
----------------------------------
DAN SCHUMACHER
2
<PAGE>
EXHIBIT T
Variable/Fixed Cost Analysis
SUMMARY OUTPUT
<TABLE>
<CAPTION>
- ----------------------------------------
Regression Statistics
- ----------------------------------------
<S> <C>
Multiple R 0.95
R Square 0.91
Adjusted R Square 0.89
Standard Error 4513.89
Observations 8
- ----------------------------------------
</TABLE>
ANOVA
<TABLE>
<CAPTION>
- -------------------- --------------- ------------------- --------------------- ------------------ -------------------
df SS MS F Signifance F
- -------------------- --------------- ------------------- --------------------- ------------------ -------------------
<S> <C> <C> <C> <C> <C>
Regression 1 1198685521 1.199E+09 58.83052973 0.00025683
Residual 6 122251374.6 20375229
Total 7 1320936896
- -------------------- --------------- ------------------- --------------------- ------------------ -------------------
</TABLE>
<TABLE>
<CAPTION>
- ----------------- ---------------- --------------------- ----------- --------------- --------------- ----------------
Coefficients Standard Error t Stat P-value Lower 95% Upper 95%
- ----------------- ---------------- --------------------- ----------- --------------- --------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Intercept -4479.28 2538.50 -1.76 0.13 -10690.76 1732.20
Revenue 0.34 0.04 7.67 0.00 0.23 0.45
- ----------------- ---------------- --------------------- ----------- --------------- --------------- ----------------
</TABLE>
Dependent Variable = Operating Income, Excluding R&D
Time Period is 1989-1996
<PAGE>
PROOF OF SERVICE
I am employed in the County of San Mateo, State of California.
I am over the age of 18 and not a party to the within cause. My business address
is Latham & Watkins, 75 Willow Road, Menlo Park, California 94025-3656.
I served the below listed document(s) described as:
SUPPLEMENTAL REPORT OF BLAINE F. NYE, Ph.D
On 10/23/98 on the following parties to this cause by Overnight Mail delivery of
a copy of the above document(s) as follows:
I placed a sealed envelope or package containing the
document(s) in a facility regularly maintained by the Federal Express for
receipt of Overnight Mail, with Overnight Mail delivery fees paid, addressed as
follows:
James C. Brooks, Esq.
Jonathan T. Losk, Esq.
Lawrence R. LaPorte, Esq.
LYON & LYON L.L.P.
633 West Fifth Street, Suite 4700
Los Angeles, CA 90071-2066
The Federal Express package was deposited as described above
at 75 Willow Road, Menlo Park, California 94025-3656.
I declare that I am employed in the office of a member of the
Bar of or permitted to practice before this Court at whose direction the service
was made.
Executed on 10/23/98, at Menlo Park, California.
/s/Clifton-Michael Garbett
---------------------------------
Clifton-Michael Garbett
